Our continued favorable view of Diamond Offshore (DO) shares reflects the company’s strong leverage to the favorable deepwater drilling outlook. With a backlog of more than $11 billion, Diamond offers a solid level of earnings and cash flow visibility going forward.

The company remains committed to returning excess cash shareholders, primarily through dividends. In addition to its regular dividend, the company has paid a special dividend of $1.25 per share in each of the last four quarters and $4 per share earlier in 2007. Given its cash flow outlook, we expect this payout pattern to remain in place in the near to medium term.

In terms of its deepwater drilling leverage, its closest peer is Transocean (RIG), relative to which it continues to trade at a discount. Our unchanged $145 price objective reflects 2009 P/E and EV/EBITDA multiples of 10.8x and 7.0x, respectively, both well within historical trading ranges and still at a discount to Transocean.

Read the full analyst report on DO.

Read the full analyst report on RIG.

“DO” Free Stock Analysis: Buy? Sell? Hold?
“RIG” Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

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