by Travis Johnson, Stock Gumshoe | May 22, 2008 3:55 pm
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Source URL: https://www.stockgumshoe.com/2008/05/may-idea-of-the-month-buy-seadrill-for-dividends-visibility/
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Well, interesting timing — two brokers downgraded Seadrill overnight in the time since I released this note.
Handelsbanken cut them to “accumulate” from “buy” — whatever that mean — because of valuation after the recent run up in the shares. According to a news release they “also increased its price target to 200 Norwegian crowns from 180 due to ‘improved visibility’ and a higher dividend capacity.”
UBS cut the shares to sell and kept their price target at 150 Krone, and was quoted as saying this (also in a news report): “‘We believe that whilst the transaction has signalling value – in that it indicates Seadrill is capable of paying out a dividend – there is little impact on the fair value of the stock … ‘We continue to be concerned that the market is underestimating cost increases for Seadrill.”
Both cuts seem based on fear of extended valuation after a runup of 40%+ in the last several months. I disagree with their ratings, but they probably know what they’re doing as much as any other analysts … if you do opt to dip a toe in the Seadrill water, the ratings cuts mean you can do so a good deal more cheaply, shares are trading for about $34 at the moment.
More of a question than a comment:
I notice that according to the May 06, 2008 list of Seadrill’slargest shareholders,
Lehman Brothers Inc. ‘owns’ 18,218,162 shares of Seadrill (4.56 %),
and Morgan Stanley & Co. Client Equity Account holds 5,580,559 shares (1.40%).
Thinking about the shaky position of these two hinted at in Travis’s piece of June 1st over at the “regular” site, I’m wondering if anyone has thoughts on how their fortunes might affect Seadrill share price for the next while. I don’t know anything about the status of these shares – are they held in some sort of arms-length arrangement for clients, and thus safe from liquidation, or are they an asset more closely linked to the companies and thus likely to be sold (possibly at a discount) as part of a restructuring/refinancing/bailout package? In other words, might they have represent a dilution threat, and if so, how significant? I would welcome any thoughts.
[disclosure – I bought some Seadrill this week]
The shareholder list is at:
http://www.seadrill.com/stream_file.asp?iEntityId=771
Thanks Mark. I suppose there’s always a chance that a large institutional shareholder could be forced to sell and bring down shares, but that seems very unlikely to me when we’re talking about brokerage firms — in nearly every case those are client account holdings, which means the client can still keep the shares even if the broker goes out of business. You’ll also often see the major mutual fund companies as major holders of shares, but those are usually spread across the portfolios of many of their funds.
Lehman and Morgan Stanley and most similar firms also trade for their own account, so anything is possible, especially if you’re dealing with a smaller company whose shares are more easily jerked around (Seadrill is not that, market cap is something over $10 billion), but I am not even a little bit worried about the potential impact on Seadrill. Good point to bring up, though, thank you.
Do you have the current reco from Penny Stock Hotline?