For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Seadrill Partners LLC (NYSE:SDLP) useful as an attempt to give more color around how Seadrill Partners is currently performing. See our latest analysis for Seadrill Partners
Was SDLP’s weak performance lately a part of a long-term decline?
I prefer to use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique allows me to analyze many different companies on a similar basis, using new information. For Seadrill Partners, its most recent earnings (trailing twelve month) is US$141.20M, which, against the previous year’s level, has dropped by a substantial -49.30%. Since these values may be relatively nearsighted, I’ve determined an annualized five-year figure for SDLP’s net income, which stands at US$154.43M This doesn’t look much better, as earnings seem to have gradually been falling over time.What could be happening here? Well, let’s look at what’s occurring with margins and if the rest of the industry is experiencing the hit as well. Over the last few years, revenue growth has fallen behind which suggests that Seadrill Partners’s bottom line has been propelled by unmaintainable cost-cutting. Viewing growth from a sector-level, the US energy services industry has been growing its average earnings by double-digit 25.89% over the prior year, . This is a turnaround from a volatile drop of -19.04% in the previous couple of years. This shows that, in the recent industry expansion, Seadrill Partners has not been able to realize the gains unlike its average peer.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Typically companies that endure an extended period of reduction in earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry disruption and growth. I suggest you continue to research Seadrill Partners to get a more holistic view of the stock by looking at:
- Financial Health: Is SDLP’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Valuation: What is SDLP worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SDLP is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.