We initiate coverage of Rowan Companies with a BUY recommendation and target price of USD 20
The company has a fleet of four UDWs and 25 jackups of which only two are currently stacked. The company’s earnings visibility is strong based on the current contract backlog, further supported by the recently announced JV with Saudi Aramco. Add to this a coffer of USD 1.3bn and improving earnings ahead, we deem the company a defensive investment at the trough, but with the a free option on a cyclical recovery.
Valuation: Our target price of USD 20/sh is based on a weighted average of current and future NAV, in combination with a mid-cycle EV/EBITDA in 2017E/18E.