Valaris is Thursday's IBD Stock Of The Day, as the offshore drilling contractor nears an early entry, riding a two-month rally, with analysts predicting surging profit growth in coming years. VAL shares edged up Thursday.
Formerly Ensco-Rowan, a stalwart name in offshore oil and gas drilling expertise and technology, Valaris operates several offshore drilling segments. Those include drillships and semisubmersible rigs under its floaters operations. Company operations are worldwide, but incorporated and with principal executive offices in Bermuda.
On Aug. 1, Valaris reported mixed second-quarter financials: a greater-than-expected loss and above-expectation revenue.
Despite the oversize loss, Chief Executive Officer Anton Dibowitz told analysts on the earnings call that his outlook for the industry remains "very positive, with increasing demand and constrained supply tightening the market."
Like most of the industry, Valaris will continue to run up against difficult comparisons in the third quarter. Analysts project earnings down 60% in Q3 to 39 cents per share, with sales increasing 9% to $478 million. However, forecasts call for stronger performance as the company exits the year, with profit ballooning 200% vs. 2022 levels to $7.06 per share in 2024, according to FactSet.
Analysts project EPS hitting $14.18 in 2025 with revenue coming in at $3.15 billion, growing 97% compared to 2022.
"Our earnings and cash flow should grow meaningfully over the next few years as rigs roll from legacy day rate contracts to higher market rates and reactivated rigs return to work on attractive contracts," Dibowitz said.
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Valaris Stock
VAL shares edged up 0.8% to 74.15 during Thursday's market trade. Valaris stock is setting up a cup-with-handle base with an official 77.77 buy point. However, a move above its Aug. 11 high of 75.68 could offer an early entry, according to MarketSmith analysis.
A move above this point would also break a downtrend in the handle. VAL has rallied 34% since hitting a low of 55.53 on June 23. On the year, Valaris is up 16%, almost mirroring the S&P 500's 15% gain.
Following Q2 earnings, Barclays raised its Valaris stock price target to 84, up from 80. The firm maintained an equal weight rating on the shares. Barclays contends the floater market is nearly sold out and demand the next year and a half will require further rig reactivations.
This is a good sign for Valaris and future pricing of its services as "significant tightness in the offshore rig market" continues, according to the firm.
On July 5, Citi analyst Nikhil Gupta initiated coverage of Valaris with a buy rating and a 85 stock price target, about 14% above where shares are currently trading.
Gupta wrote that the offshore rig markets have seen a "swift recovery." Gupta added that increased activity and market tightness should push demand for Valaris' services.
Valaris stock has a Composite Rating of 76 out of 99 with a 91 Relative Strength Rating. VAL also has an EPS Rating of 29 out of 99.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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