On September 8, 2023, Borr Drilling Ltd (BORR, Financial) recorded a daily gain of 5.13%, despite a 3-month loss of -5.5%. The company's Loss Per Share stands at 0.29. With these figures, the question arises: is Borr Drilling significantly overvalued? This article provides a comprehensive valuation analysis to answer that question. Read on to gain insights into Borr Drilling's financial health and future prospects.
Company Overview
Borr Drilling Ltd (BORR, Financial) is a drilling contractor that owns and operates jack-up rigs of modern and high-specification designs. The company provides drilling services to the oil and gas exploration and production industry, operating a fleet of 16 jack-up drilling rigs, primarily through Norway. With a market capitalization of $1.80 billion and sales of $616 million, Borr Drilling's current stock price stands at $7.17. However, the GF Value, a proprietary measure of a stock's intrinsic value, is estimated at $3.23, suggesting that the stock may be significantly overvalued.
GF Value Analysis
The GF Value is a unique measure that estimates the current intrinsic value of a stock. It is calculated based on historical multiples, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. If the stock price is significantly above the GF Value Line, the stock is considered overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
For Borr Drilling, the GF Value stands at $3.23, indicating that the stock is significantly overvalued at its current price of $7.17 per share. This overvaluation suggests that the long-term return of Borr Drilling's stock is likely to be much lower than its future business growth.
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Financial Strength Analysis
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's critical to review a company's financial strength before deciding whether to buy shares. Borr Drilling has a cash-to-debt ratio of 0.05, ranking worse than 85.7% of 1021 companies in the Oil & Gas industry. Based on these figures, GuruFocus ranks Borr Drilling's financial strength as 3 out of 10, suggesting a poor balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Borr Drilling has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $616 million and Loss Per Share of $0.29. Its operating margin is 23.39%, which ranks better than 70.42% of 967 companies in the Oil & Gas industry. Overall, GuruFocus ranks the profitability of Borr Drilling at 4 out of 10, indicating poor profitability.
Growth is one of the most important factors in the valuation of a company. Borr Drilling's 3-year average revenue growth rate is worse than 91.53% of 850 companies in the Oil & Gas industry. However, its 3-year average EBITDA growth rate is 54.8%, which ranks better than 85.73% of 820 companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. In the past 12 months, Borr Drilling's ROIC was 7.53 while its WACC came in at 14.45.
Conclusion
In conclusion, Borr Drilling (BORR, Financial) is estimated to be significantly overvalued. The company's financial condition is poor, and its profitability is poor. Its growth ranks better than 85.73% of 820 companies in the Oil & Gas industry. To learn more about Borr Drilling stock, you can check out its 30-Year Financials here.
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