Why Borr Drilling (BORR) Is Back on Investors’ Radar

Borr Drilling (BORR) has drawn fresh attention after completing a $300 million convertible senior notes offering and agreeing to acquire five jack-up rigs for $287 million through a joint venture, reshaping its balance sheet and fleet profile.

The recent financing and jack up rig acquisition come on the back of strong momentum, with a 90 day share price return of 30.06% and a very large 1 year total shareholder return of 254.65%. However, the 3 year total shareholder return shows an 8.54% decline, so the current strength follows a tougher period and may reflect changing views on Borr Drilling's risk and growth profile at a share price of US$6.10.

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With Borr Drilling trading close to its US$6.14 analyst price target and posting a very large 1-year return, the key question is whether the current valuation leaves room for further upside or if the market is already pricing in future growth.

Most Popular Narrative: 4.5% Overvalued

Analysts in the most followed narrative see fair value at $5.84, slightly below the last close at $6.10, and link that gap to ambitious growth and margin assumptions.

The valuation seems to price in that Borr Drilling's strong recent contract momentum, particularly in Mexico, the Middle East, and Southeast Asia, will translate into persistently high day rates and utilization. This view may underestimate the lingering risks from oversupply in the jack up market and the increased volume of transitional or short-duration contracts, which could compress both future revenues and margins if the anticipated demand does not fully materialize.

Curious how this narrative justifies a richer price tag with only gradual revenue growth and modest margin gains, all while assuming a much higher future earnings multiple?

Result: Fair Value of $5.84 (OVERVALUED)

However, there is still a real chance that tighter environmental rules or political shifts around key customers could disrupt contracts and challenge the higher P/E assumptions already reflected in the valuation.

Another Angle: DCF Says The Market Is Too Pessimistic

While the popular narrative sees Borr Drilling as about 4.5% overvalued at a fair value of $5.84, the SWS DCF model points in the opposite direction. On that view, the shares at $6.10 trade roughly 83% below an estimated future cash flow value of $36.88. This raises a clear question: which story do you trust more, earnings multiples or long term cash flows?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Borr Drilling for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 50 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Sentiment on Borr Drilling is clearly mixed right now. If you want a clearer picture, it helps to move quickly and review both sides of the story by weighing its 2 key rewards and 3 important warning signs

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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.