Energy

RBC Sees 4 Energy Stocks as Potential Buyout Candidates

Lee Jackson

Published: March 16, 2016 9:15 am

Last Updated: January 13, 2020 11:54 am

It happens every year, and 2016 won’t be any different. Larger companies looking to add to growth in addition to that of the organic or internal variety scan the field for purchases and acquisitions that are easy to bolt on and could add returns in a timely fashion. This year the process may even speed up some as the market sell-off that happened through the first two months may have already put some companies in the sights of acquirers, despite the recent market rally.

In what is a yearly and very all-encompassing report, the analysts at RBC again go through every sector looking for possible takeover candidates. Last year the company’s takeover screens yielded 29 buyouts that were eventually acquired over the following 12 months.

One screen that should be of interest to many investors is the potential takeout candidates in the energy sector. After a brutal year for oil pricing, some companies may be looking very attractive to majors and the large exploration and production companies. We found four well-known stocks on the RBC list.

Diamond Offshore Drilling

Offshore drillers have been hit extra hard, and this leading stock is a possible candidate to be bought. Diamond Offshore Drilling Inc. (NYSE: DO) provides contract drilling services to the energy industry worldwide. It provides services in floater market, including ultra-deepwater, deepwater and midwater. The company operates a fleet of 32 offshore drilling rigs, comprised of eight ultra-deepwater, seven deepwater and eight mid-water semi submersibles; five jackups; and four drillships. It serves independent oil and gas companies, as well as government-owned oil companies. The company is a subsidiary of Loews.

Diamond trades at five times enterprise value (EV) to EBITDA and posts gross margins of 26%. These are the metrics that RBC uses when looking for potential takeover candidates. The company also boasts EBIT margins of 24%. The Thomson/First Call consensus price target for the stock is $19.13. The shares closed trading on Tuesday at $22.25

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