Harry Winston Diamond Corporation (HWD): Are These Two Diamonds in the Rough or an Investor’s Best Friend?

Marilyn Monroe sang, “A kiss on the hand may be quite continental, but diamonds are a girl’s best friend.” Does that go for everything “diamonds?” Concerning equities, are different kinds of “diamonds” an investor’s best friend?

Diamond Offshore Drilling, Inc. (NYSE:DO) provides contract drilling services to the energy industry. They’re a leader in deepwater drilling, and own and operate one of the largest fleets of offshore drilling units globally.

They recently reported net income for the fourth quarter of 2012 of $156 million, or $1.12 per share on a diluted basis. This compares with net income of $188 million, or $1.36 per share on a diluted basis, in the same period a year prior. Revenues in the fourth quarter of 2012 were $751 million, compared with revenues of $748 million in the same quarter last year.

For the full-year 2012, they reported net income of $720 million, or $5.18 per share on a diluted basis. This compares with net income of $963 million, or $6.92 per share on a diluted basis, in 2011. Revenues for the full-year 2012 were $2.987 billion, compared with $3.322 billion in 2011.

The company declared a special quarterly cash dividend of $0.75 per share of common stock and a regular quarterly cash dividend of $0.125 per share of common stock. Both dividends are payable on March 1, 2013 to shareholders of record on Feb. 19, 2013.

Going forward, investors should consider that Diamond Offshore Drilling is working continually to manage operating costs across their fleet. Mr. Larry Dickerson, President and CEO, said there’s some cost inflation pressure in their industry. However, he stated that the company is focusing on controlling and reducing their expenses.

In addition, a report in Drilling Contractor Magazine (November 2012 – Joanne Liou) indicated that “…the offshore market is providing more signs for a positive outlook as well, powered by the deepwater Golden Triangle and a robust jackup market.”  Offshore, the Golden Triangle (Brazil, the U.S. Gulf of Mexico (GOM) and West Africa) continues to shine light on the deepwater stage. More discoveries in East Africa are building opportunities for more activity in 2013. Diamond Offshore Drilling can benefit from this with their varied fleet of 32 semisubmersibles, 13 jackups and four drillships.

In an earnings call discussing Q4 2012 results, Mr. Michael D. Acuff, Senior Vice President of Contracts and Marketing at the company, stated that, “Turning to the deepwater. We continue to see strong demand in this segment, also with several long-term programs on the horizon beginning in 2014 and beyond.” He further said, ” One point to note, in the Gulf of Mexico we are continuing to see a resurgence in exploration and development activity, in both the deepwater and ultra-deepwater segment.”