Transocean LTD (RIG), Seadrill Ltd (SDRL): Why This Driller Looks Attractive Despite Its Recent Rally

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From the standpoint of valuations, all three companies appear to be undervalued on a forward earnings basis.

Company Forward P/E PEG ROE Gross Margin 5 yr. EPS growth est.
Seadrill 11.8x 0.68x 19.39% 59.32% 25.12%
Transocean 8.43x 0.8x 6.18% 29.93% 23.46%
Ensco 7.78x 0.41x 10.73% 52.9% 27.1%

However Seadrill enjoys the highest ROE along with the highest gross margins.

Its trailing price-earnings multiple (P/E) of 17 may seem high and even drive investors away, but the metric has actually declined significantly over the last year. There is a divergence in Seadrill’s P/E ratio and its share price, which suggests that its shares could head north (if its P/E is going to regain its value).

Final words

As of now, both ENSCO PLC (NYSE:ESV) and Seadrill Ltd (NYSE:SDRL) appear to be solid investments options. However Seadrill’s recent spurt of acquisitions coupled with a high dividend yield, seem to offer more value than Ensco. Obviously SeaDrill is more leveraged than its peers, but since it’s a fast growing company with a high ROE, I believe that its pros outweigh the cons.

The article Why This Driller Looks Attractive Despite Its Recent Rally originally appeared on and is written by Piyush Arora.

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Seadrill. The Motley Fool owns shares of Seadrill and Transocean. Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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