Earnings Scorecard: Rowan (RDC)

Following the better-than-expected quarterly results, Rowan Companies Inc. (RDC) is optimistic about the prospects for the jackup market this year, citing an uptick in work opportunities, tenders and inquiries.

Rowan’s premium high specification rig fleet enjoys greater utilization and higher dayrates than most other shallow water fleets. We believe that significant earnings leverage could be achieved with increasing tendering activity.

Rowan experienced minimal impact from the Gulf of Mexico moratorium and plans to mobilize three high specification jackups out of the region. These include EXL II newbuild, which is contracted for 3 years with BP plc in Trinidad, as well as the Bob Palmer and Ralph Coffman jackups.

Earnings Review

Earnings in the second quarter were 79 cents per share, well above the Zacks Consensus Estimate of 68 cents, on the back of solid contract drilling operations. However, the quarter’s earnings were lower than the year-ago earnings of 85 cents.

Revenues in the quarter were $490.1 million, up nearly 2% year-over-year and ahead of the Zacks Consensus Estimate of $455 million.

We have discussed the quarterly results at length here: Rowan Beats Zacks Estimates

Agreement of Analysts

The overall trend in annual estimates remains positive, with 11 of 23 analysts raising their projections for 2010 last month and 6 moving in the opposite direction. In the last 7 days, 7 analysts raised their estimates and only 2 moved in the opposite direction. For 2011, 11 of 23 analysts covering the stock moved upward in the last 30 days, while 5 reduced their expectations. However, in the last 7 days, 7 analysts raised their estimates and only 2 moved in the opposite direction.

Magnitude of Estimate Revisions

Given the positive tone of revisions, the Zacks Consensus Estimate for fiscal 2010 has increased 7 cents over the last month. Earnings estimates for fiscal 2011 also increased 8 cents over the same period. Over the past seven days, the Zacks Consensus Estimate increased 5 cents each for 2010 and 2011. The current Zacks Consensus Estimate is pegged at $2.57 and $2.05 for 2010 and 2011, respectively.

Neutral Rating Maintained

We maintain our Neutral recommendation for Rowan shares following the company’s better-than-expected second-quarter results. The company offered favorable cost guidance for the third quarter and is confident about the prospects of adding backlog on several high-spec jackups near-term. This will be further augmented by the recent acquisition of three under-construction high-spec rigs from Norway’s Skeie Drilling & Production ASA (SKDP) at a significant discount to the current replacement cost.

With oil prices remaining strong and tendering activity on the rise, we expect the international jackup market to strengthen further. However, we believe that pricing will be under modest pressure this year as new jackups begin to enter the market. We maintain our Neutral recommendation on the company.

ROWAN COS INC (RDC): Free Stock Analysis Report

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