Seadrill Ltd (SDRL) Stock Forecast & Price Target

Seadrill is well-positioned for long-term growth with a strong balance sheet and a young drilling fleet suitable for both shallow and ultra-deepwater drilling operations. The company's upside potential is strengthened by the possibility of securing longer-term contracts at higher day rates, as well as the potential for fleet rationalization through scrapping older rigs and relocating to higher-growth markets. However, a downside risk exists in the event of a price deterioration in the oil market, which could lead to decreased demand for drilling services. Despite this risk, the recent contract win in Asia for the West Capella signals a strong potential for growth in the region and highlights the company's ability to navigate through challenging market conditions. Additionally, Seadrill's focus on safety and sustainability could also be a key differentiator in an increasingly competitive market. Based on current valuation metrics, Seadrill appears undervalued with a price target of $55, representing a multiple of about 7x estimated 2026 EBITDA.

Seadrill is currently facing challenges in maintaining contract coverage, with only 70% coverage for the rest of 2026. This is due to open days on certain rigs in the US Gulf, including the Neptune and Vela. While the company's net leverage is in line with its long-term target, its trading valuation is at a 2+ turn discount to peers. Even with a low estimated FCF in 2026, the company's 2027 FCF estimates should allow for buybacks and potentially closing the valuation gap.