Oil & Gas Stocks

Rowan Companies PLC Valuation – June 2018 $RDC

Company Profile (excerpt from Reuters): Rowan Companies plc, incorporated on October 11, 2011, is a provider of offshore contract drilling services to the international oil and gas industry. The Company operates through two segments: deepwater and jack-ups. Its deepwater segment consists of drillship operations. As of December 31, 2016, the Company’s fleet consisted of 29 mobile offshore drilling units, including 25 self-elevating jack-up rigs and four ultra-deepwater drillships. The Company’s fleet operates across the world, including the United States Gulf of Mexico (US GOM), the United Kingdom and Norwegian sectors of the North Sea, the Middle East and Trinidad. Rowan Companies Inc. is the subsidiary of the Company.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of RDC – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

 

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,078,905,926 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 6.03 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -111.37% Fail
6. Moderate PEmg Ratio PEmg < 20 -20.97 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.39 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 6.03 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.10 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$0.77
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$11.21
MG Value based on 0% Growth -$6.57
Market Implied Growth Rate -14.74%
Current Price $16.22
% of Intrinsic Value N/A

Rowan Companies PLC does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.46 in 2014 to an estimated $-0.77 for 2018. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Rowan Companies PLC revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -20.97, which was below the industry average of 87.76, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-12.75.

Rowan Companies PLC scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$12.75
Graham Number $0.00
PEmg -20.97
Current Ratio 6.03
PB Ratio 0.39
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

 

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $1,432,200,000
Total Current Liabilities $237,500,000
Long-Term Debt $2,510,500,000
Total Assets $8,328,000,000
Intangible Assets $0
Total Liabilities $3,044,800,000
Shares Outstanding (Diluted Average) 126,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$4.42
Dec2017 $0.57
Dec2016 $2.55
Dec2015 $0.75
Dec2014 -$0.93
Dec2013 $2.03
Dec2012 $1.46
Dec2011 $5.83
Dec2010 $2.36
Dec2009 $3.24
Dec2008 $3.77
Dec2007 $4.31
Dec2006 $2.85
Dec2005 $2.08
Dec2004 -$0.01
Dec2003 -$0.08
Dec2002 $0.90
Dec2001 $0.80
Dec2000 $0.74
Dec1999 -$0.12
Dec1998 $1.43

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.77
Dec2017 $1.03
Dec2016 $1.23
Dec2015 $0.99
Dec2014 $1.46
Dec2013 $2.76
Dec2012 $3.20
Dec2011 $4.01
Dec2010 $3.17
Dec2009 $3.47
Dec2008 $3.25
Dec2007 $2.61
Dec2006 $1.55
Dec2005 $0.85
Dec2004 $0.31
Dec2003 $0.46
Dec2002 $0.74

Recommended Reading:

Other ModernGraham posts about the company

Rowan Companies PLC Valuation – July 2016 $RDC
27 Companies in the Spotlight This Week – 4/4/15
Rowan Companies plc Annual Valuation – 2015 $RDC
17 Companies in the Spotlight This Week – 3/29/14
Rowan Companies (RDC) Annual Valuation – 2014

Other ModernGraham posts about related companies

Cabot Oil & Gas Corp Valuation – June 2018 $COG
Concho Resources Inc Valuation – June 2018 $CXO
Vlaero Energy Corp Valuation – June 2018 $VLO
Occidental Petroleum Corp Valuation – June 2018 $OXY
Andeavor Valuation – May 2018 $ANDV
Halliburton Co Valuation – May 2018 $HAL
National Oilwell Varco Inc Valuation – May 2018 $NOV
Newfield Exploration Co Valuation – May 2018 $NFX
Kinder Morgan Inc Valuation – May 2018 $KMI
Range Resources Corp Valuation – May 2018 $RRC

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top