Noble Corp. (NE) temporarily trades at a discount to peers in the offshore drilling services sector because of challenges in bringing newbuild rigs to market and getting them to operate smoothly, says Edward C. Muztafago, Vice President of Investment Research at Societe Generale Group.
“Generally, it takes several quarters to work through these newbuild efficiency issues,” Muztafago said. “As Noble works through those issues, and the fact that the stock has been so heavily discounted due to the cost associated with newbuild downtime, some of the valuation discrepancy will go away.”
Muztafago says NE has been performing solidly since his coverage initiation on the stock about a month and a half ago. He also says temporary execution hurdles are common in the space, and many companies have overcome the initial issues in a few quarters.
“The stock has been a pretty solid performer since we initiated about a month and a half ago, but on a valuation basis it still trades at a pretty decent discount to its peer Ensco (ESV), and an even greater discount to its peer Rowan (RDC),” Muztafago said.
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