Jefferies Upgrades DO To Hold From Underperform

Jefferies is upgrading Diamond Offshore Drilling, Inc. (NYSE: DO) to Hold from Underperform “as we believe the midwater and deepwater rig markets, where the Company's fleet is primarily exposed, are likely to hold up better in 2011 and 2012 than the market's more bearish expectations.”

“That said, we still believe that midwater and deepwater utilization and dayrates are likely to tread water over the next 1-2 years as any forecasted increase in floater demand is likely to be met with incoming newbuild UDW rig supply,” Jefferies writes.

“However, with global E&P budgets set to rise 10-15% in 2011 and deepwater exploration activity picking up enough to help absorb the UDW newbuilds entering the market, we believe this should help reduce the negative ‘trickle down' impact on the midwater market we had been forecasting.”

Diamond Offshore Drilling closed Monday at $69.33.