- Valaris (VAL): Buy, Sell, or Hold Post Q1 Earnings?
May 17, 2026
The past six months have been a windfall for Valaris’s shareholders. The company’s stock price has jumped 73.3%, hitting $98.86 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Valaris, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Valaris Not Exciting?
Despite the momentum, we're cautious about Valaris. Here are three reasons why VAL doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Shows Momentum
Cyclical sectors like Energy often flatter weaker operators during favorable price environments, but a longer-term lens separates those from businesses that can consistently perform across market cycles. Over the last five years, Valaris grew its sales at a decent 11.6% compounded annual growth rate. Its growth was slightly above the average energy upstream and integrated energy company and shows its offerings resonate with customers.Valaris Quarterly Revenue
2. Low Gross Margin Reveals Weak Structural Profitability
In a single quarter or year, gross margins in the sector can swing wildly due to commodity prices, hedging, or changes in labor costs. Over a multi-year period across different points in the cycle, gross margin differences can signal whether a company is a structurally-advantaged producer (“rock” quality, takeaway, operating costs) or not.
Valaris, which averaged 21.1% gross margin over the last five years, exhibiting bottom-tier unit economics in the sector. It means the company will struggle at higher commodity prices than peers with better gross margins.Valaris Trailing 12-Month Gross Margin
3. Cash Burn Ignites Concerns
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Valaris’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 5.5%, meaning it lit $5.46 of cash on fire for every $100 in revenue.Valaris Trailing 12-Month Free Cash Flow Margin
Final Judgment
Valaris isn’t a terrible business, but it isn’t one of our picks. Following the recent rally, the stock trades at 18.8× forward P/E (or $98.86 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward a top digital advertising platform riding the creator economy.
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Stocks We Like More Than Valaris
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- Mohnish Pabrai's Strategic Moves: Transocean Ltd Sees a -6.83% Impact
May 14, 2026
This article first appeared on GuruFocus.
Analyzing the Latest 13F Filing for Q1 2026
Mohnish Pabrai (Trades, Portfolio) recently submitted the 13F filing for the first quarter of 2026, providing insights into his investment moves during this period. Mohnish Pabrai (Trades, Portfolio) is the Managing Partner of Pabrai Investment Funds, a group of focused value funds. Known for his value investing philosophy, Pabrai has shifted much of his focus to international markets like India, Turkey, and South Korea, where he perceives better opportunities. His U.S.-based portfolio constitutes a smaller portion of the funds total assets under management. Pabrai primarily invests in smaller, out-of-favor companies with market caps around half a billion dollars, maintaining a concentrated portfolio.
Warning! GuruFocus has detected 4 Warning Signs with HCC. Is HCC fairly valued? Test your thesis with our free DCF calculator.Mohnish Pabrai's Strategic Moves: Transocean Ltd Sees a -6.83% Impact
Key Position Increases
Mohnish Pabrai (Trades, Portfolio) also increased stakes in a total of 2 stocks, among them:
The most notable increase was in Alpha Metallurgical Resources Inc (NYSE:AMR), with an additional 36,738 shares, bringing the total to 579,738 shares. This adjustment represents a significant 6.77% increase in share count, a 1.78% impact on the current portfolio, with a total value of $119,002,820. The second largest increase was in Warrior Met Coal Inc (NYSE:HCC), with an additional 11,000 shares, bringing the total to 1,810,831. This adjustment represents a significant 0.61% increase in share count, with a total value of $168,678,910.
Summary of Sold Out
Mohnish Pabrai (Trades, Portfolio) completely exited 1 holding in the first quarter of 2026, as detailed below:
Valaris Ltd (NYSE:VAL): Mohnish Pabrai (Trades, Portfolio) sold all 459,098 shares, resulting in a -5.76% impact on the portfolio.
Key Position Reduces
Mohnish Pabrai (Trades, Portfolio) also reduced his position in 1 stock. The most significant change includes:
Reduced Transocean Ltd (NYSE:RIG) by 6,647,461 shares, resulting in a -24.58% decrease in shares and a -6.83% impact on the portfolio. The stock traded at an average price of $5.63 during the quarter and has returned 4.52% over the past 3 months and 65.51% year-to-date.
Portfolio Overview
At the first quarter of 2026, Mohnish Pabrai (Trades, Portfolio)'s portfolio included 3 stocks, with top holdings comprising 39.89% in Warrior Met Coal Inc (NYSE:HCC), 31.97% in Transocean Ltd (NYSE:RIG), and 28.14% in Alpha Metallurgical Resources Inc (NYSE:AMR).Mohnish Pabrai's Strategic Moves: Transocean Ltd Sees a -6.83% Impact
The holdings are mainly concentrated in 2 of the 11 industries: Basic Materials and Energy.Mohnish Pabrai's Strategic Moves: Transocean Ltd Sees a -6.83% Impact
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- Third Avenue Management's Strategic Moves: Harley-Davidson Inc. Takes Center Stage
May 13, 2026
This article first appeared on GuruFocus.
Exploring the Latest 13F Filing and Key Investment Adjustments
Introduction to Third Avenue Management (Trades, Portfolio)
Is TDW fairly valued? Test your thesis with our free DCF calculator.
Third Avenue Management (Trades, Portfolio) recently submitted its 13F filing for the first quarter of 2026, offering a glimpse into its strategic investment decisions. Founded by the legendary value investor Martin Whitman, Third Avenue Management (Trades, Portfolio) is renowned for its deep value and distressed investing approach. The firm manages mutual funds, separate accounts, and hedge funds, and has been in partnership with Affiliated Managers Group since 2002. This collaboration has enabled Third Avenue to extend ownership rights to senior professionals, ensuring a transparent succession plan. The firm operates across four core strategies: Value, Small-Cap, Real Estate, and International Real Estate, available through various investment vehicles. For over 25 years, Third Avenue has maintained a fundamental, bottom-up approach, focusing on high-conviction ideas and maximizing risk-adjusted returns across diverse market capitalizations and geographies.Third Avenue Management's Strategic Moves: Harley-Davidson Inc. Takes Center Stage
Summary of New Buy
Third Avenue Management (Trades, Portfolio) added a total of six stocks to its portfolio, with the most significant addition being Harley-Davidson Inc. (NYSE:HOG). The firm acquired 1,462,670 shares, which now account for 4.8% of the portfolio, with a total value of $29.58 million. The second-largest addition was Robert Half Inc. (NYSE:RHI), consisting of 903,905 shares, representing approximately 3.73% of the portfolio, with a total value of $22.96 million. The third-largest addition was Brookdale Senior Living Inc. (NYSE:BKD), with 463,664 shares, accounting for 1.03% of the portfolio and a total value of $6.34 million.
Key Position Increases
Third Avenue Management (Trades, Portfolio) also increased its stakes in a total of ten stocks. The most notable increase was in Boise Cascade Co. (NYSE:BCC), with an additional 132,022 shares, bringing the total to 562,021 shares. This adjustment represents a significant 30.7% increase in share count, impacting the portfolio by 1.63%, with a total value of $42.63 million. The second-largest increase was in FirstService Corp. (NASDAQ:FSV), with an additional 31,738 shares, bringing the total to 50,452. This adjustment represents a significant 169.59% increase in share count, with a total value of $7.01 million.
Summary of Sold Out
Third Avenue Management (Trades, Portfolio) completely exited four holdings in the first quarter of 2026. The firm sold all 337,193 shares of Deutsche Bank AG (NYSE:DB), resulting in a -2.36% impact on the portfolio. Additionally, it liquidated all 188,340 shares of Rayonier Inc. (NYSE:RYN), causing a -0.74% impact on the portfolio.
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Key Position Reduces
Third Avenue Management (Trades, Portfolio) also reduced its position in 26 stocks. The most significant changes include a reduction in Warrior Met Coal Inc. (NYSE:HCC) by 219,318 shares, resulting in a -37.6% decrease in shares and a -3.52% impact on the portfolio. The stock traded at an average price of $90.06 during the quarter and has returned -1.21% over the past three months and -3.33% year-to-date. Additionally, the firm reduced its position in Kaiser Aluminum Corp. (NASDAQ:KALU) by 55,482 shares, resulting in a -65% reduction in shares and a -1.16% impact on the portfolio. The stock traded at an average price of $126.61 during the quarter and has returned 28.38% over the past three months and 57.87% year-to-date.
Portfolio Overview
As of the first quarter of 2026, Third Avenue Management (Trades, Portfolio)'s portfolio included 53 stocks. The top holdings were 12.49% in Tidewater Inc. (NYSE:TDW), 8.09% in Valaris Ltd. (NYSE:VAL), 6.92% in Boise Cascade Co. (NYSE:BCC), 5.5% in Warrior Met Coal Inc. (NYSE:HCC), and 4.8% in Harley-Davidson Inc. (NYSE:HOG).Third Avenue Management's Strategic Moves: Harley-Davidson Inc. Takes Center Stage
The holdings are mainly concentrated in nine of the eleven industries: Energy, Real Estate, Financial Services, Basic Materials, Consumer Cyclical, Industrials, Healthcare, Technology, and Communication Services.Third Avenue Management's Strategic Moves: Harley-Davidson Inc. Takes Center Stage
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- 3 Russell 2000 Stocks That Fall Short
May 12, 2026
Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Rush Enterprises (RUSHA)
Market Cap: $5.48 billion
Headquartered in Texas, Rush Enterprises (NASDAQ:RUSH.A) provides truck-related services and solutions, including sales, leasing, parts, and maintenance for commercial vehicles.
Why Are We Cautious About RUSHA?
Products and services are facing significant end-market challenges during this cycle as sales have declined by 4% annually over the last two years Earnings per share have contracted by 8.5% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $71.28 per share, Rush Enterprises trades at 18.7x forward P/E. Dive into our free research report to see why there are better opportunities than RUSHA.
Butterfield Bank (NTB)
Market Cap: $2.22 billion
Founded in 1784 as one of the oldest banks in the Western Hemisphere, Butterfield Bank (NYSE:NTB) provides banking, wealth management, and trust services to individuals and businesses in select offshore financial centers including Bermuda, Cayman Islands, and the Channel Islands.
Why Are We Wary of NTB?
Net interest income trends were unexciting over the last five years as its 3.8% annual growth was below the typical banking firm Estimated net interest income growth of 1.1% for the next 12 months implies demand will slow from its five-year trend Net interest margin of 2.7% reflects its high servicing and capital costs
Butterfield Bank is trading at $56.21 per share, or 1.8x forward P/B. If you’re considering NTB for your portfolio, see our FREE research report to learn more.
Valaris (VAL)
Market Cap: $6.36 billion
Operating the world's largest fleet of offshore drilling rigs across six continents, Valaris (NYSE:VAL) provides offshore drilling rigs and crews to oil and gas companies exploring and producing in deep waters and shallow seas.
Why Does VAL Worry Us?
Sales tumbled by 5% annually over the last ten years, showing market trends are working against its favor during this cycle Costly operations and weak unit economics result in an inferior gross margin of 21.1% that must be offset through higher production volumes Cash burn makes us question whether it can achieve sustainable long-term growth
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Valaris’s stock price of $91.78 implies a valuation ratio of 18.3x forward P/E. Read our free research report to see why you should think twice about including VAL in your portfolio, it’s free.
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- Is Invesco S&P MidCap 400 Pure Growth ETF (RFG) a Strong ETF Right Now?
May 8, 2026
Designed to provide broad exposure to the Style Box - Mid Cap Growth category of the market, the Invesco S&P MidCap 400 Pure Growth ETF (RFG) is a smart beta exchange traded fund launched on 03/01/2006.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is managed by Invesco, and has been able to amass over $346.24 million, which makes it one of the average sized ETFs in the Style Box - Mid Cap Growth. Before fees and expenses, this particular fund seeks to match the performance of the S&P MidCap 400 Pure Growth Index.
The S&P MidCap 400 Pure Growth Index measures the performance of securities that exhibit strong growth characteristics in the S&P MidCap 400 Index.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.35%.
RFG's 12-month trailing dividend yield is 0.26%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 34.6% of the portfolio, the fund has heaviest allocation to the Industrials sector; Healthcare and Information Technology round out the top three.
When you look at individual holdings, Technipfmc Plc (FTI) accounts for about 2.42% of the fund's total assets, followed by Valaris Ltd (VAL) and Woodward Inc (WWD).
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RFG's top 10 holdings account for about 21.15% of its total assets under management.
Performance and Risk
Year-to-date, the Invesco S&P MidCap 400 Pure Growth ETF has added about 17.5% so far, and was up about 34.99% over the last 12 months (as of 05/08/2026). RFG has traded between $46.06 $63.04 in this past 52-week period.
RFG has a beta of 1.12 and standard deviation of 19.83% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 97 holdings, it effectively diversifies company-specific risk .
Alternatives
Invesco S&P MidCap 400 Pure Growth ETF is an excellent option for investors seeking to outperform the Style Box - Mid Cap Growth segment of the market. There are other ETFs in the space which investors could consider as well.
Vanguard Mid-Cap Growth Index Fund ETF Shares (VOT) tracks CRSP U.S. Mid Cap Growth Index and the iShares Russell Mid-Cap Growth ETF (IWP) tracks Russell MidCap Growth Index. Vanguard Mid-Cap Growth Index Fund ETF Shares has $18.67 billion in assets, iShares Russell Mid-Cap Growth ETF has $19.84 billion. VOT has an expense ratio of 0.05% and IWP changes 0.23%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Mid Cap Growth
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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Invesco S&P MidCap 400 Pure Growth ETF (RFG): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
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- Valterra Platinum (JSE:VAL) Narrative Shifts As Trimmed Targets Meet Mixed Analyst Conviction
May 6, 2026
Find your next quality investment with Simply Wall St's easy and powerful screener, trusted by over 7 million individual investors worldwide.
Valterra Platinum’s fair value price target has been trimmed to ZAR 1,470.7 from ZAR 1,480.7, a small adjustment that still matters if you are tracking where analysts see the stock settling over time. This shift sits alongside research that is split between slightly lower targets and a more positive stance from some analysts, putting the focus on how you weigh valuation against execution risk and growth potential. Read on to see how this updated narrative fits together and what it could mean for how you follow the stock from here.
Stay updated as the Fair Value for Valterra Platinum shifts by adding it to your watchlist or portfolio. Alternatively, explore our Community to discover new perspectives on Valterra Platinum.
What Wall Street Has Been Saying
🐂 Bullish Takeaways
Berenberg recently upgraded Valterra Platinum, a signal that its analyst team, including Richard at Berenberg, sees a more constructive risk reward profile for the stock at current levels. The upgrade suggests confidence that management can execute on its plans, which matters if you are weighing the current share price against the company’s long term growth ambitions.
🐻 Bearish Takeaways
RBC Capital lowered its price target to 8,000 GBp, which points to a more cautious stance on how much upside the firm expects relative to previous assumptions. The cut from RBC Capital highlights concerns around valuation and the balance between execution risk and the growth potential already reflected in the share price.
Do your thoughts align with the Bull or Bear Analysts? Perhaps you think there's more to the story. Head to the Simply Wall St Community to discover more perspectives!JSE:VAL 1-Year Stock Price Chart
We've flagged 2 risks for Valterra Platinum. See which could impact your investment.
What's in the News
Valterra Platinum reported first quarter 2026 M&C PGM production of 743,500 ounces and total refined PGM production owned of 778,500 ounces, compared with 696,300 ounces and 437,100 ounces a year earlier. The company reaffirmed its 2026 guidance for Platinum Group Metals M&C and refined production in a range of 3.0 Moz to 3.4 Moz. The Board approved a gross final dividend of ZAR 6,200m, or ZAR 23.00 per share, and also declared a special dividend of ZAR 5,300m, or ZAR 20.00 per share, with aligned record, payment, and ex dividend dates on the JSE and LSE. For the fourth quarter and full year to 31 December 2025, Valterra Platinum reported M&C PGM production of 880,200 ounces for the quarter and 3,200,600 ounces for the year, with total refined production of 1,296,700 ounces for the quarter and 4,287,200 ounces for the year.
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How This Changes the Fair Value For Valterra Platinum
Fair Value set at ZAR 1,470.7, trimmed by ZAR 10.0 from ZAR 1,480.7. Revenue Growth assumption at 9.22%, reduced from 12.94%. Profit Margin assumption at 24.52%, raised from 21.88%. Future P/E multiple at 17.35x, cut from 20.65x. Discount Rate set at 18.73%, up slightly from 18.46%.
Never Miss an Update: Follow The Narrative
Narratives connect Valterra Platinum’s business story to analyst forecasts by linking production plans, market demand, and key risks to an evolving fair value view. They refresh as new research, guidance, and operating data come through so you can keep your thesis up to date.
Head over to the Simply Wall St Community and follow the Narrative on Valterra Platinum to stay up to date on:
How rising demand for platinum group metals and fuel cell technologies feeds into expectations for Valterra Platinum’s future revenue and operating leverage. What a ZAR 4b annual cost saving program and high grade projects like Sandsloot could mean for production efficiency and margins. Key threats such as electric vehicle adoption, higher recycling rates, and concentration in a few South African assets that could pressure long term growth and earnings stability.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include VAL.jse.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
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- Diamondback Energy Hiking Shale Output. Oil Stocks Skid On Earnings.
May 5, 2026
Diamondback Energy gave positive guidance late Monday after beating earnings estimates for the first quarter. The oil stock fell Tuesday after hitting a new high. Tidewater and Transocean gave mixed reports.
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- Valaris Limited (VAL) Reports Q1 Loss, Beats Revenue Estimates
May 4, 2026
Valaris Limited (VAL) came out with a quarterly loss of $0.24 per share versus the Zacks Consensus Estimate of a loss of $0.05. This compares to a loss of $0.53 per share a year ago. These figures are adjusted for non-recurring items.
This quarterly report represents an earnings surprise of -380.00%. A quarter ago, it was expected that this company would post earnings of $0.51 per share when it actually produced earnings of $0.79, delivering a surprise of +54.9%.
Over the last four quarters, the company has surpassed consensus EPS estimates three times.
Valaris, which belongs to the Zacks Oil and Gas - Drilling industry, posted revenues of $465.4 million for the quarter ended March 2026, surpassing the Zacks Consensus Estimate by 6.29%. This compares to year-ago revenues of $620.7 million. The company has topped consensus revenue estimates four times over the last four quarters.
The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.
Valaris shares have added about 102.8% since the beginning of the year versus the S&P 500's gain of 5.6%.
What's Next for Valaris?
While Valaris has outperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?
There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.
Ahead of this earnings release, the estimate revisions trend for Valaris was favorable. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #2 (Buy) for the stock. So, the shares are expected to outperform the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
It will be interesting to see how estimates for the coming quarters and the current fiscal year change in the days ahead. The current consensus EPS estimate is $0.41 on $499.6 million in revenues for the coming quarter and $3.41 on $2.16 billion in revenues for the current fiscal year.
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Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Oil and Gas - Drilling is currently in the top 17% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Another stock from the same industry, Seadrill (SDRL), has yet to report results for the quarter ended March 2026. The results are expected to be released on May 11.
This offshore drilling services provider is expected to post quarterly loss of $0.10 per share in its upcoming report, which represents a year-over-year change of +56.5%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days.
Seadrill's revenues are expected to be $332 million, down 0.9% from the year-ago quarter.
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Valaris Limited (VAL) : Free Stock Analysis Report
Seadrill Limited (SDRL) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
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- Diamondback Energy, Oil Stocks Skid On Earnings After Solid Rallies
May 4, 2026
Diamondback Energy gave positive guidance late Monday after beating earnings estimates for the first quarter. Tidewater and Transocean gave mixed reports and tumbled in extended trading. Oil stocks in those industry groups continue to act relatively well.
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- Valaris (NYSE:VAL) Delivers Impressive Q1 CY2026
May 4, 2026
Offshore drilling contractor Valaris (NYSE:VAL) beat Wall Street’s revenue expectations in Q1 CY2026, but sales fell by 25% year on year to $465.4 million. Its GAAP loss of $0.24 per share was significantly below analysts’ consensus estimates.
Is now the time to buy Valaris? Find out in our full research report.
Valaris (VAL) Q1 CY2026 Highlights:
Revenue: $465.4 million vs analyst estimates of $440.8 million (25% year-on-year decline, 5.6% beat) EPS (GAAP): -$0.24 vs analyst estimates of -$0.06 (significant miss) Adjusted EBITDA: $69.1 million vs analyst estimates of $49.96 million (14.8% margin, 38.3% beat) Operating Margin: 4.3%, down from 23% in the same quarter last year Free Cash Flow was -$25.9 million, down from $55.7 million in the same quarter last year Other production: down -11.5% year on year Market Capitalization: $7.08 billion
Company Overview
Operating the world's largest fleet of offshore drilling rigs across six continents, Valaris (NYSE:VAL) provides offshore drilling rigs and crews to oil and gas companies exploring and producing in deep waters and shallow seas.
Revenue Growth
A company’s long-term performance can give signals about its business quality. Even a bad business, especially in a cyclical industry, can shine for a year or so, but a top-tier one should exhibit resilience through cycles. Over the last five years, Valaris grew its sales at a decent 11.6% compounded annual growth rate. Its growth was slightly above the average energy upstream and integrated energy company and shows its offerings resonate with customers.Valaris Quarterly Revenue
Energy cycles can be long enough that a single five-year period can still reflect one price environment, which is why an additional, decade-long view can help capture through-cycle performance. Valaris’s ten year performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 5% over the last ten years.
Revenue provides useful context, but it is heavily influenced by commodity prices and acquisitions. Production volumes, by contrast, reveal whether the underlying asset base is actually growing. Over the last two years, Valaris’s other production averaged 104% year-on-year growth.Valaris Other Production
This quarter, Valaris’s revenue fell by 25% year on year to $465.4 million but beat Wall Street’s estimates by 5.6%. This quarter, Valaris’s Other production fell by 11.5% year on year.
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Adjusted EBITDA Margin
Adjusted EBITDA margin captures the true operating profitability of an energy producer by removing accounting noise around depletion and capitalized drilling costs. It reveals how much cash the asset base generates before capital structure and reinvestment requirements shape reported earnings.
Valaris was profitable over the last five years but held back by its large cost base. Its average EBITDA margin of 15.9% was among the worst in the energy upstream and integrated energy sector.
On the plus side, Valaris’s EBITDA margin rose by 22.6 percentage points over the last year.Valaris Trailing 12-Month EBITDA Margin
In Q1, Valaris generated an EBITDA margin profit margin of 14.8%, down 14.4 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue. This adjusted EBITDA beat Wall Street’s estimates by 26.9%.
Cash Is King
Adjusted EBITDA shows how profitable a company’s existing “rock” is before financing and reinvestment, while free cash flow shows how much value remains after paying to replace those wells. Because production declines over time, strong EBITDA can coexist with weak FCF if drilling is expensive or declines are steep. FCF therefore captures both operating efficiency and the cost of sustaining production.
Valaris’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 5.5%, meaning it lit $5.46 of cash on fire for every $100 in revenue.
The level of free cash flow is important, but its durability across cycles is just as critical. Consistent margins are far more valuable than volatile swings driven by commodity prices.
Valaris’s ratio of quarterly free cash flow volatility to WTI crude price volatility over the past five years was 29.7 (lower is better), indicating that its cash generation is far more sensitive to commodity-price swings than most peers. This elevated volatility limits its access to capital in downturns and makes it unlikely to act as a consolidator when weaker competitors come under pressure.
You may be asking why we wait until the free cash flow line to perform this stability analysis versus commodity prices. Why not compare revenue or EBITDA to WTI in the case of Valaris? Because what ultimately matters is not how much revenue or profit you earn when prices are high but how much cash you can generate when prices are low. Free cash flow is the superior metric because it includes everything from hedging prowess to growth and maintenance capex to management behavior during good times and bad.Valaris Trailing 12-Month Free Cash Flow Margin
Valaris burned through $25.9 million of cash in Q1, equivalent to a negative 5.6% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.
Key Takeaways from Valaris’s Q1 Results
We were impressed by how significantly Valaris blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its EPS missed. Overall, we think this was a solid quarter with some key areas of upside. The market seemed to be hoping for more, and the stock traded down 2.6% to $99.85 immediately after reporting.
Is Valaris an attractive investment opportunity right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
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