Most analysts probably would prefer for their stocks being upgraded to rise rather than fall on the news. In the oil patch, the daily whims of oil prices actually may be more dominant than an analyst upgrade or downgrade. After many of the offshore drilling stocks have risen more than 50% from their recent troughs, Jefferies has decided it was time to upgrade the rating for Noble Corp. PLC (NYSE: NE) and downgrade the rating for Rowan Companies PLC (NYSE: RDC).

Jefferies raised Noble Corp. to Buy from Hold, and it has a $9.50 price target. The firm downgraded Rowan Companies to Hold from Buy and has a $20.00 price target. Noble is being viewed as the safest way to play offshore drilling exposure at the moment in an area where there should be some caution. They see modest upside to shares on a DCF and on a relative valuation basis.

Monday’s ratings change at Jefferies was based on oil prices and balance sheet improvements. Still, Jefferies said that the industry outlook remains challenged. Their view is that tendering isn’t up much and the ability for warm stacked rigs to be cheaply unstacked plus a growing surplus of UDW rigs makes a line of sight to pricing tough to see without robust demand growth by 2019.

Rowan’s downgrade was despite a view that it will still generate healthy free cash flows. Still, Jefferies sees risks that medium-term earnings disappoint as the turn in jackups and UDW markets is likely challenged from a profitability standpoint.

Jefferies believes that the hot rigs should get the job first. The report said:

Although reactivation and mobe costs seem relatively minor for warm stacked rigs, stacking economics (“stackonomics”) should nonetheless deter significant competition from warm stacked rigs for small (1-2 well) tenders that don’t offer strong follow-on prospects. This suggests rigs rolling off contract this year should be advantaged in securing whatever short-term incremental work arises. However, for jobs beyond 3 months to 6 months, the pool of rigs in competitive standing grows. We think some recent contracts by warm stacked rigs could result in poorer economics than had they stayed idle (it will be dependent on if there is follow-on work).

This is one of those situations where the one upgrade might leave some investors scratching their heads. One of the main issues here to consider is that the sector call is rather cautious due to Noble being the only Buy rating — and where the other five  companies now have Hold ratings with the firm saying “cannot favorably recommend the group.” Oil was last seen trading down 0.8% at $52.73 on Monday afternoon.

Noble shares were down almost 6.4% at $6.75 on Monday. It has a 52-week range of $4.45 to $13.90 and a consensus analyst price target from Thomson Reuters of $6.83. Rowan shares were last seen down 6.6% at $18.00, in a 52-week range of $10.67 to $21.68 and with a consensus price target of $17.10.

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