Unlock: Noble (NE) Trade Idea

(This NE Trade Idea was issued on November 16 for $1.85. Trade was closed today for $4.50 or +143% gain.)

Noble
Ticker: NE
Sector: Oil and Gas Drilling
Current Price: $13.03
Target: $11.50
Stop Loss: $14.25
Time Duration: 60 Days

Trade Idea – Buy NE Jan’16 $14 Put for $1.85 or less.

Back on November 6, buyer of 5,000 Jan’16 $12 puts paid $0.58 today. About $290,000 bearish bet on 1.5x daily average put volume that remains in open interest. Trader is betting on stock returning back to new 52-week low after this brief rally is over post earnings.

Despite the protection of its $8.1bn backlog and strong contract coverage, NE remains exposed to the potential underutilization of rigs scheduled to roll of contract, given the current lack of available tendering opportunities. The company attempted to allay some of these concerns by noting that it is currently pursuing tangible opportunities for its rigs with near-term exposure to contract expirations, but also tempered its outlook by suggesting that those rigs are likely to see periods of idle time between contracts.

This large revenue backlog could either serve as major risk or opportunity for stock in coming quarters. For now, we continue to see weekly cuts in rig counts. Until that changes, we expect forward earnings estimates to continue to come under pressure as NE rigs come offline with contract expirations over time.