Borr Drilling stock plunges to 52-week low at $1.62 amid market challenges

Borr Drilling's stock hit a 52-week low of $1.62, marking a 72% decline over the past year, despite a modest P/E ratio of 4.95 and a Price/Book multiple of 0.4. Moody's affirmed Borr's B3 rating with a stable outlook, noting concerns over lower contractual coverage and increased debt for new rigs, projecting flat EBITDA around $500 million through 2026; free cash flow was highly negative at $408 million primarily due to issues with receivables from Petroleos Mexicanos (PeMex) and expenditures on new rigs, but is expected to improve to $260 million in 2025 aided by the recovery of delayed PeMex payments.

Analysis

Borr Drilling Ltd. (BORR) is navigating severe market headwinds, evidenced by its stock plummeting to a 52-week low of $1.62, a drastic 71.96% decline over the past year. Despite this, the company exhibits a low P/E ratio of 4.95 and a Price/Book multiple of 0.4, suggesting potential undervaluation, though this is set against a significant debt burden of $2.1 billion. Borr Drilling reported a 31% revenue growth in 2024 and maintains a robust gross margin of 56% on its last-twelve-months revenue of $1 billion. However, its free cash flow was highly negative at -$408 million, impacted by delayed receivables from Petroleos Mexicanos (PeMex) and expenditures on new rigs, although gross leverage did decrease to 4.2x from 4.7x in 2023. Moody's affirmed Borr's B3 rating with a stable outlook, but voiced concerns over lower contractual coverage, increased debt for new rigs, and the impact of contract suspensions by key clients like Saudi Arabian Oil Company and PeMex, projecting flat EBITDA around $500 million for 2025-2026, contingent on 75%-80% contracted coverage. An improvement in free cash flow to $260 million is anticipated in 2025, supported by PeMex payment recovery and adequate liquidity from a $150 million revolving credit facility, though ESG considerations adversely affect its credit profile, and the overall market sentiment remains negative.

Key Decisions for Investors

• Investors should carefully weigh the apparent undervaluation suggested by Borr Drilling's P/E of 4.95 and P/B of 0.4 against its substantial $2.1 billion debt, recent -$408 million free cash flow, and ongoing operational challenges like contract suspensions.
• Key indicators to monitor for a potential turnaround include the successful recovery of PeMex receivables, achievement of the 75%-80% contractual coverage needed for projected $500 million EBITDA, and consistent positive free cash flow generation from 2025 as guided by Moody's.
• Consider that Moody's stable B3 rating, while providing some baseline, anticipates a conservative financial policy focused on debt reduction rather than immediate shareholder returns, warranting a cautious stance until tangible improvements in financial health and operational stability are evident.