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Investing.com - Morgan Stanley (NYSE:MS) upgraded Arabian Drilling Co (TADAWUL:ARABIAND) from Equalweight to Overweight while lowering its price target to SAR99.00 from SAR118.00, citing an expected inflection in free cash flow.
The Saudi Arabian drilling contractor’s stock has faced pressure throughout 2024, with multiple rig suspension announcements deterring investors attempting to time a market bottom. Morgan Stanley believes the company now presents an attractive opportunity due to its "overly discounted valuation" compared to historical levels.
The investment bank noted that consensus forward EV/EBITDA is 1.5 standard deviations below the average since Arabian Drilling’s IPO, while the firm’s base case suggests 21% upside potential. Morgan Stanley also considers market sentiment too bearish, pointing out that only 10% of ratings are Overweight or Buy, with earnings per share forecasts down approximately 25% year-to-date for 2025-2027.
The stock’s 4.4% rise following the company’s announcement of four onshore rig renewals suggests light positioning among investors, according to Morgan Stanley. While this renewal wasn’t unexpected—management had previously mentioned advanced negotiations—the firm believes any reassuring developments will be well received after recent negative news.
Morgan Stanley identified new contracts for suspended offshore rigs and potential resumption of suspended onshore rigs as the most important catalysts for Arabian Drilling, though it noted the full benefits would likely only materialize in 2026.
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