Valaris (VAL): Assessing Valuation After Securing a Long-Term Shell Drillship Contract

Valaris (VAL) just locked in a multi year contract with Shell for its VALARIS DS-8 drillship offshore Brazil. This long dated deal gives investors more visibility into future revenue.

See our latest analysis for Valaris.

That backdrop helps explain why, even after a recent soft patch with a 7 day share price return of minus 8.54 percent and a 30 day share price return of minus 8.59 percent, Valaris still sits at a year to date share price return of 10.07 percent and a 1 year total shareholder return of 20.11 percent. This suggests momentum has cooled in the short term, but the longer story is still pointing up.

If this Shell deal has you thinking about where else offshore and defense related spending might flow, it could be worth exploring aerospace and defense stocks as a way to surface other potential beneficiaries.

But with shares still up double digits this year, trading below analyst targets yet carrying only modest revenue growth, investors now face a key question: is Valaris undervalued, or is the market already pricing in its future gains?

Most Popular Narrative: 10.1% Undervalued

Against Valaris's last close at $49.51, the most followed narrative points to a higher long term fair value, built on improving profitability and cash generation.

Ongoing prudent fleet management including high operational efficiency (96% revenue efficiency for the quarter), active cost control, and divestiture of less competitive assets enhances net margins and free cash flow, while the entry of customer funded upgrades reduces upfront CapEx and further supports earnings quality.

Read the complete narrative.

Curious how modest top line expectations can still back a higher valuation? The explanation focuses on margin expansion, disciplined capital use, and a lower future earnings multiple than the sector. Want to see exactly how those assumptions stack up over time?

Result: Fair Value of $55.10 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, faster energy transition policies and a potential glut of idle rigs could weaken offshore demand, undermining Valaris's pricing power and margin expansion story.

Find out about the key risks to this Valaris narrative.

Build Your Own Valaris Narrative

If you see the story differently or prefer to dig into the numbers yourself, you can build a custom view in just a few minutes: Do it your way.

A great starting point for your Valaris research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.

Looking for your next smart investment move?

Skip the guesswork and put Simply Wall Street's powerful screens to work, so you do not miss the opportunities other investors may pursue later.

• Review these 3633 penny stocks with strong financials that pair tiny market caps with financial strength instead of hype.
• Scan these 24 AI penny stocks that are connected with demand for automation, data analysis, and intelligent software.
• Focus on these 913 undervalued stocks based on cash flows where current prices are compared to estimated future cash flow potential.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com