Rowan Upgraded to Buy at Pritchard Capital Partners (RDC)

Pritchard Capital Partners is out with a research report this morning, where it upgrades shares of Rowan Companies Inc. RDC from Neutral to Buy; it has a $27.00 price target on the stock. The Pritchard Capital Partners analysts believe that the recent pullback “represents an opportune time for investors to establish a position in the stock and play the growing bifurcation in both the land and offshore drilling markets, which should accelerate as operators are becoming more demanding of rig specs and drilling experience.” They noted, “The number of tenders for high-spec equipment continues to increase. We estimate there are only 70 delivered high-spec jackups in the global fleet, of which 45 are owned by the major drillers. RDC has seven such units, or 10% of the global fleet and 16% of the proven driller’s fleet, along with four more under construction. Proven operators have also begun to withdraw existing tenders to add amendments requiring significant operating experience, which should eliminate many of the spec builders with rigs under construction from tenders, and, in our opinion, increase the likelihood for one-off transactions over the next 18-months. This occurrence is not limited to jackups, but floaters as well.” The PCP analysts also noted, “RDC management, along with the major GOM drillers and E&Ps, met with Ken Salazar and Michael Bromwich, head of the Bureau of Ocean Energy this week. Our main takeaways from the discussion are: (1) “Expect a second deepwater moratorium, possibly in the form of a press release, as early as this week. (2) Containment and spill response plans appear to be among the government’s main focus. (3) The government is not as aware, or playing dumb, to the impact the lack of permitting is having on shallow-water operations. (4) Drillers are threatening to incur costs to pull all assets out of the GOM."