Seadrill's 8.2% Dividend Yield, Potential Price Appreciation Make It A Buy

We maintain our bullish stance on Seadrill (SDRL) based upon its quality of asset base, high dividend yield, attractive contract backlog, and continuous focus on growing fleets. It is highly attractive to dividend growth investors, with a dividend yield of 8.2 percent, in comparison to the industry average of 1.8 percent. The company's recent initiative to relocate its business operations from Norway would bring logistic efficiencies and enable the company to attain more potential customers.

The stock is trading at a forward P/E of 11.3x, at a premium when compared to its peers Transocean's (RIG) and Ensco's (ESV) forward P/E multiples of 10.3x and 8.1x, respectively. It is trading at EV/EBITDA of 12.3x, P/S of 4.6x and P/B of 3.05x. The valuations are on the higher side vs. its competitors. However, the company is well positioned to outshine its competitors in terms of growth. The company's five-year expected PEG ratio of 0.44 depicts that investors can buy growth cheaply. Therefore, we recommend investors to take a long position in the stock. Read more