Barron’s has published a brief article making a bullish case for Noble Corporation. Jay Palmer, writing for Barron’s, believes that Noble is well positioned for a world in which deepwater drilling will account for a growing share of production as China and other emerging countries continue to demand more oil. The article points out that Noble has a solid balance sheet and significant international operations that should mitigate the risk of further disruption in the Gulf of Mexico due to the federal moratorium put in place in response to the Deepwater Horizon disaster.
Here is a brief excerpt from the article:
Noble is certainly a more attractive investment than its competitors. Transocean has run up a load of debt to buy its 135 rigs, while Noble’s debt is a modest 9% of total capital. In addition, Transocean’s operating profit margin of about 35% lags behind Noble’s 50%. Diamond, for its part, also carries a lot of debt while its stock trades at around 2.3 of book value, high relative to Noble’s 1.2.
One reason why Noble remains out of favor with investors is the company’s move this summer to purchase Frontier Drilling for $2.16 billion, money that investors would rather has seen distributed as a special dividend. The move, however, was quite canny, immediately doubling Noble’s backlog and adding seven rigs to its fleet. The deal also boosted the portion of revenue coming from deepwater rather than shallow-water operations, and deepwater is where the future action is.
Barron’s believes that Noble also has potential advantages due to its presence in Brazil and the “bonanza of offshore finds” recently discovered in that country’s waters. The article pegs fair value at $47 per share, or 44 percent higher than Friday’s close of $32.70.
Regular readers of The Rational Walk are already familiar with Noble which we profiled in early June when the shares traded near $28 due to panic in the industry associated with the uncapped Macondo well which was still spewing oil in an uncontrolled manner at the time. Since our article appeared, shares have recovered by approximately 17 percent and the company has also paid a 0.665 per share dividend.
While the Barron’s article has the basic information, readers can revisit the articles in The Rational Walk’s series for a more complete analysis of Noble:
- Noble Corporation Profile and Analysis published on June 3, 2010
- Analysis of Noble’s Acquisition of Frontier published on June 30, 2010
- Analysis of Noble’s Q2 2010 Results published on July 20, 2010
- Noble Corporation Forecasts Manageable Cost for Retrofitting Rigs on August 10, 2010
Readers who are interested in Noble’s competitors may find the following Rational Walk articles to be useful:
- Ensco International Profile and Analysis on June 11, 2010
- Einhorn’s Greenlight Capital Takes Large Position in Ensco on July 12, 2010
- Analysis of Ensco’s Q2 2010 Results published on July 22, 2010
- Diamond Offshore Represents Interesting Play on Deepwater Revival on July 15, 2010
Disclosure: The author of this article owns shares of Noble Corporation.