We recently initiated coverage on Noble Corporation (NE) with a Neutral recommendation and a $43 target price.

Switzerland-based Noble Corporation is a provider of diversified services for the oil and gas industry. The company performs contract drilling services with a fleet of 63 mobile offshore drilling units Incorporatedluding 13 semisubmersible rigs, 4 drillships, 43 jackups and 3 submersibles. It also provides labor contract drilling, engineering and consulting, and project management services.

Noble recently reported significantly better-than-expected fourth quarter 2009 results, driven by the contribution from the Contract Drilling Services segment and the cost-control measures undertaken by the company.

With stabilizing oil prices and better bidding activity, offshore drillers are experiencing an improvement in market conditions, which was reflected in Noble’s fourth quarter results. The company’s deepwater operations will gain further traction with the expected commencement of operations of three new ultra-deepwater units this year. Along with Noble’s $8.1 billion backlog (as on December 31, 2009), this provides significant earnings and cash flow visibility for the coming years.

We believe that Noble’s diversified exposure to both deepwater and shallow water conditions, a fleet that continues to deliver top margins and a solid balance sheet will add value for shareholders. However, the company’s mid-water floating fleet that suffers from lower utilization and a lack of tenders from the E&P operators whets our concern and is likely to continue to weigh on the stock.

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