1. Valaris Ltd. (NYSE:VAL)
Forward Price-to-Earnings Ratio: 5.41
Average Upside Potential: 60.97%
Number of Hedge Fund Holders: 39
Valaris Ltd. (NYSE:VAL) is the largest offshore drilling and well drilling company in the world, and owns 52 rigs, including 36 offshore jack-up rigs, 11 drillships, and 5 semi-submersible platform drilling rigs. It owns and operates a fleet of drilling rigs, including semi-submersibles and drillships, which are used to explore and develop oil and gas fields in deepwater and harsh environments.
The broader energy sector has faced challenges due to global economic concerns and rising interest rates. Slowing economic growth has led to decreased oil demand. This, combined with lower oil prices, has negatively impacted Valaris Ltd. (NYSE:VAL), as it relies on drilling rig demand from oil producers. Reduced spending on exploration and drilling activities has made it difficult for the company to achieve higher revenue and earnings growth.
Yet, the company continues to record booming business, securing a $500 million contract backlog with Equinor offshore Brazil for Valaris DS-17. In the second quarter of 2024, it made $610.10 million in revenue, up 46.94% year-over-year. This growth was driven by a 99% revenue efficiency rate during the quarter, reflecting effective contract management and optimal utilization of its fleet. The company’s backlog also increased for the 7th consecutive quarter, reaching over $4.3 billion.
The company has achieved several safety milestones, including 2 years without a recordable incident for the Valaris 249 team and 1 year without a recordable incident for the Valaris DS-10 and 106 teams. It has also successfully reactivated the Valaris DS-7 drillship for a long-term contract, demonstrating its ability to efficiently reactivate rigs and secure profitable contracts. It still has additional high-specification drillships that can be reactivated to meet increasing customer demand.
It’s a promising investment opportunity in the offshore drilling industry. The company’s strong financial position, growing backlog, and focus on reactivating high-specification rigs position it for continued growth and profitability. With stable oil prices and positive industry trends, Valaris Ltd. (NYSE:VAL) is well-equipped to capitalize on emerging opportunities and deliver value to shareholders.
Praetorian Capital stated the following regarding Valaris Limited (NYSE:VAL) in its Q2 2024 investor letter:
“Valaris Limited (NYSE:VAL) has been rangebound for over two years now, awaiting the signing of new contracts at current market rates, that will replace expiring contracts that are frequently less than half of current prevailing rates. There have been some questions as to why the company has been slow to sign new contracts. However, I believe that management is trying to trade a slightly reduced price for increased duration of contract tenure, and that’s the reason for a lack of commentary on new contracts. Should the company announce new contracts at anywhere near current market rates, I believe that the shares will respond in a rather dramatic way—especially as Valaris is by far the cheapest of the large drilling companies (based on the enterprise value per rig metric), despite having one of the best fleets and strongest balance sheets. Between our common and warrant position, Valaris was our 2nd largest position at the end of June.”
While we acknowledge the growth potential of Valaris Ltd. (NYSE:VAL), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VAL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
