Rowan Companies (NYSE: RDC) provides
a range of onshore and offshore contract drilling services to the petroleum industry. The firm operates a fleet of 21 self-elevating mobile offshore drilling platforms and 29 deep-well land drilling rigs. It also manufactures and markets drilling products and systems for the oil and gas, marine, mining and dredging industries. Subsidiary LeTourneau Technologies operates a mini-steel mill and manufactures front-end loaders, log stackers and gantry cranes.
Investors were pleased two weeks ago, when UBS started coverage of the U.S. offshore drilling sector with a positive stance. The action was based on a healthy longer-term macroeconomic outlook, strong commodity prices and increasing demand for offshore rigs. Rowan was initiated with a "buy" and a $53 price target.
The stock
popped on that news, the subsequent four-session run of crude oil to all-time highs, and Lehman Brothers' reiteration of its RDC "overweight" rating (5/20). Since then, RDC shares have been consolidating the gain in a bullish "flag" pattern. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.
Altogether, brokers now recommend the issue with six "strong buys", nine "buys", ten "holds", one "underperform" and two "sells". Analysts predict a 22% growth rate, through the next year. The RDC P/E ratio (10.25), PEG ratio (0.71), Price to Sales ratio (2.40), Price to Book ratio (2.06), Price to Cash Flow ratio (8.20) and EPS Growth rate (33.33%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 91% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $30.49 and $47.72. A stop-loss of $38.30 looks good here. Note that the firm is next expected to release quarterly results in late July.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold a position in the stock discussed above.
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