While Diamond Offshore's (DO) fourth-quarter 2007 earnings came below our estimates (due to high costs and lower jackup utilization), the company announced another $1.25 per share special dividend, after paying a similar $1.25 per share in the last quarter and $4 per share earlier in 2007. Our continued Buy recommendation on the stock reflects the company's strong leverage on the current cycle and its industry-leading position -- next to Transocean (RIG) -- in the deepwater drilling market.
Diamond's current strong backlog position of $11 billion has improved its earnings visibility substantially. Our unchanged $135 price objective reflects our bullish view of Diamond shares. We have used 2008 P/E and EV/EBITDA multiples of 11.2x and 7.0x, respectively, to arrive at our target price, both well within historical trading ranges and still at a discount to Transocean.
Read the full analyst report on DO.
Read the full analyst report on RIG.
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