(By Balachander) Seadrill Ltd. (NYSE: SDRL) shares were initiated with a "buy" rating and price target of $41 by Deutsche Bank (DB).
SDRL is a unique play on both strong near-term fundamentals and one of the best secular growth stories in the industry (high spec and deepwater assets), the bank said.
With a fleet of 67 rigs, DB said, SDRL has one of the highest quality and most diversified fleets in the industry.
"While we see relatively modest upside in the shares, SDRL's significant yield is likely to remain attractive and the total return potential supports our BUY case," the bank wrote in a note.
DB continues to see a strong secular story in deepwater, growing customer preference for premium equipment and high grading of fleets within the offshore sub-sector.
"As a high quality and well diversified play SDRL represents a unique opportunity within the offshore drilling sub-sector. We expect SDRL to continue its aggressive growth strategy, both organically and by acquisition and joint ventures," the bank wrote.
DB said a key risk is SDRL's significant financial leverage, which is well above industry norms. Execution on the aggressive newbuild program is also a risk.
The stock, which has been trading in the 52-week range of $31.02 to $42.34, shed 1.02 percent to trade at $38.78 on Tuesday.