Diamond Offshore Remains a Buy

Reiterating his bullish case for Diamond Offshore Drilling, Inc. (DO), Zacks energy sector analyst Sheraz A. Mian explains why he has issued a Buy rating to the shares of the contract drilling company:

'While Diamond's third-quarter earnings came below our estimates, they were up 24% year-over-year due to continued day-rate gains. Importantly, the company announced a $1.25 per share special dividend, after paying a $4 per share special dividend earlier this year, underscoring its shareholder focus and strong cash flows.

'Our continued Buy recommendation on the stock reflects the company's strong leverage on the current cycle and its industry-leading position (next to RIG) in the deepwater drilling market. Diamond's current strong backlog position has improved its earnings visibility substantially.

'In terms of its deepwater drilling leverage, its closest peer is Transocean (RIG), relative to which it continues to trade at a discount. Our new $135 price objective, up from $105 before, reflects our bullish view of Diamond shares.

'We have used 2008 P/E and EV/EBITDA multiples of 11.2x and 7.0x, respectively, to arrive at our target price, both well within historical trading ranges and still at a discount to Transocean.'

Waiting and Watching TiVo

Senior Zacks media analyst Ann Northrop, CFA has issued a Hold rating on TiVo (TIVO), the digital video service provider:

'TiVo faces increasing competition from cable and satellite providers, which more than three years ago began offering digital video recorder (DVR) service with its digital cable in one set-top box at no upfront costs and comparable monthly subscription rates. Despite superior functionality, TiVo's market share has since shrunk.

'Exacerbating the share loss, DirecTV (DTV), which accounts for 2.8 million, or nearly two-thirds of TiVo's subscriber base, began to offer a second competing HD DVR last year and as a result TiVo has experienced large subscriber attrition. Its new licensing deals with Comcast (CMCSK) and Cox (CXR) seem very unlikely to fill the subscriber and revenue gap that the loss of DirecTV will leave. Moreover, TiVo's new pricing plans may slow subscriber losses but will increase sub-acquisition costs, slowing its path to positive EPS.

'TiVo recently won a patent infringement lawsuit against EchoStar, under which EchoStar (DISH) will pay TiVo roughly $74 million in damages plus interest and stop deploying the DVR service to new and existing EchoStar customers. The jury concluded that EchoStar had willfully infringed TiVo's patent on its time-warp technology for digital video recorders.

'This decision recognizes that TiVo's intellectual property is valuable and provides further incentive for other companies to enter into commercial arrangements with TiVo.