Monday, Credit Suisse upgraded Noble Corp. (NE) shares to Outperform from Neutral and increased its price target to $41 from $30. The brokerage increased its 2009 EPS estimate to $6.31 from $6.29, and its 2010 estimate to $5.17 from $5.14.
Analyst Jayaram said that in a subdued pricing environment, normalized earnings matter. Given significant newbuild rig additions, secular declines on the U.S. GOM shelf, and the anticipated conclusion of several LNG 'mega' projects between 2009 and 2011, the analyst believes pricing power even at higher oil prices in an economic recovery will be limited.
In this subdued growth environment, the analyst believes the market will increasingly focus on the normalized rather than full-cycle earnings power of the drillers and reward companies poised to generate superior free cash flow through the cycle.
Introducing normalized earnings framework that incorporates free cash flow generation. The analyst's framework not only considers the normalized earnings power of the drillers on a rig-by-rig basis for 2012, but adjusts valuations based on anticipated free cash flow generation between 2009 and 2011, which he views as a superior approach for stock selection under the muted dayrate recovery scenario that appears most likely.
On the analyst's normalized earnings estimates, Atwood Oceanics Inc. (ATW) and Pride International Inc. (PDE) screen as the most attractively valued stocks, but a key limitation of this analysis is the failure to measure balance sheet changes.
After adjusting for anticipated free cash flow generation from 2009 to 2011, Transocean Ltd. (RIG) and NE screen as the two most attractive drillers in the group, while Rowan Companies Inc. (RDC) is the most expensive. The analyst upgraded NE stock on valuation and raised his 12-month target price to $41, assuming 12 times normalized earnings and parity with his updated discounted cash flow.
As a result of its $10.6 billion backlog and a sharply reduced capex profile given the scheduled conclusion of the bulk of its newbuild program, the analyst estimates NE will generate over $3.2 billion or $13.61/share in free cash flow between 2009 and 2011. The analyst believes this war chest uniquely positions the company versus the peer group, particularly the jackup focused companies, given the company's historical success of adding value in cyclical downturns.
Currently, NE is down $1.14 or 3.15% and trading at $35.08.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.