DryShips Inc. (DRYS) signed an agreement with a major South Korean shipyard for the option to construct up to four ultra deepwater drillships for a total project cost of about $600 million per drillship. It includes a non-refundable slot reservation fee of $24.8 million per drillship to be applied if the options are exercised.The four options can be declared within 12 months of the agreement, with deliveries from 2013 to 2014.
The new orders would be sisterships of those already under construction and will allow DryShips to take advantage of various employment opportunities without affecting its balance sheet.
During third quarter 2010, DryShips’ total revenue was more than $225.5 million, up 1.4% year over year, which also exceeded the Zacks Consensus Estimate of $220 million. Net income was $49.3 million or 18 cents per share compared with a net income of $31.4 million or 11 cents in the prior-year quarter.
However, in the reported quarter, DryShips incurred $49.7 million of one-time special charges. Excluding these items, adjusted EPS was 38 cents, miles ahead of the Zacks Consensus Estimate of 26 cents.
DryShips declared that over 80% of its shipdays in 2011 are fixed at around $37,000 per day, which will help tit to avoid spot-market volatility. Furthermore, the company also announced that the rates for ultra deepwater rigs have bottomed out in the third quarter of 2010 at around low-$400,000 per day range. After that the scenario will become more favorable since the rates are trending up and demand for drilling rig may surpass supply in 2011. DryShips competes mainly with Diana Shipping Inc. (DSX) and Excel Maritime Carriers Ltd. (EXM).
We maintain our long-term Neutral recommendation for DryShips. Currently, it is a short-term Zacks #1 Rank (Strong Buy) stock.
DRYSHIPS INC (DRYS): Free Stock Analysis Report
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