As of 11:45 a.m. EDT today, a quick glance at any of the major financial websites for the share price of Seadrill Ltd. (NYSE: SDRL) makes it look like the stock is up an insane 21,253%. That's based on yesterday's closing price of $0.12 per share, and the current price of $18. But a whole lot of other things happened overnight, completely changing the math based on the company's emergence from Chapter 11 bankruptcy on Monday.
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An 80% reduction in the number of shares outstanding and a 98.1% reduction in the percentage of equity owned by common shareholders before the bankruptcy emergence mean that anyone who owned shares at market close yesterday is actually losing money -- more than 40% -- today.
In short, everything changed overnight, following the company's announcement that it had emerged from bankruptcy, a move which drove its stock price down more than 40% yesterday. Based on how the market has priced all of its competitors, yesterday's decline shouldn't have shocked anyone who's followed the sector. Here's a quick look at the new equity structure, from Seadrill's press release:
Further confusing the matter for the average investor, there's incorrect math on most of the financial websites, showing Seadrill as having a market cap above $9 billion today. That would make it by far the most valuable of the major offshore drillers:
But it's a miscalculation based on the company's pre-bankruptcy share count, which was just over 504 million. As of today, Seadrill has 100 million shares outstanding. If we multiply the current $18 share price by the new share count, we get a market cap of $1.8 billion, making Seadrill one of the cheaper-valued offshore drillers.
If you owned Seadrill shares yesterday, your investment is actually worth less money today than yesterday. Here's how:
If you owned 1,000 shares at the close yesterday, you would own 3.7345 shares of the "new" Seadrill now. At yesterday's close, your 1,000 shares would have been worth $120 based on the $0.12 per share closing price. Today, your 3.7345 shares would be worth $67.22 based on the $18 price today. That's another 44% loss after yesterday's massive drop.
Bottom line: All of the moving numbers in the background are creating a lot of noise, and this is exactly why I cautioned investors against looking at yesterday's big sell-off as a buying opportunity.
Ironically, the current price might be an excellent value point, based on the carrying value of the company's assets when it last filed financials. Trading for less than $1.9 billion in market cap, with a very high-quality fleet of drilling vessels and what should be a strong balance sheet, it's moving up my list of buy candidates.
But just as I wrote yesterday, until I see its balance sheet -- including all assets and liabilities -- the math on any valuation is a little too "back of the napkin" for me. While I don't think it would be unreasonable to take on a little risk to buy a small position today, I plan to wait for updated financials and balance-sheet data before acting. After all, there are plenty of opportunities in the oil patch now.
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Jason Hall owns shares of Diamond Offshore Drilling, Ensco, Noble, and Transocean and has the following options: long January 2019 $15 calls on Transocean. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.