Valaris Limited (VAL): A Bull Case Theory

We came across a bullish thesis on Valaris Limited on Valueinvesting subreddit by Rich_Okra5720. In this article, we will summarize the bulls’ thesis on VAL. Valaris Limited's share was trading at $48.69 as of July 30^th. VAL’s trailing and forward P/E were 11.48 and 13.79 respectively according to Yahoo Finance.

Valaris (VAL), the world’s largest operator of high-spec offshore drilling rigs, is a deep-value play hiding in plain sight. After emerging from Chapter 11 in 2021, the company now controls a highly strategic asset base of twelve seventh-generation drillships, five semi-subs, and over thirty modern jack-ups—irreplaceable rigs that would cost over $25 billion to build today, yet trade at just ~15% of replacement cost.

With offshore dayrates back to ~$500k and no new drillships expected before 2028 due to a decimated supply pipeline, the setup for existing players is highly favorable. Offshore drilling is resurging as shale output flattens, and major oil companies are ramping up long-cycle projects in Brazil, Guyana, and the Gulf of Mexico, where offshore production costs now rival or beat shale at $30–$50 per barrel.

Valaris is positioned to capture this demand surge with an industry-leading fleet and a cleaned-up balance sheet—net debt is just $800 million against a $4.1 billion backlog. If dayrates return to prior peaks of $700k+, annual free cash flow could exceed $2 billion, against a current EV of only $3.9 billion. Activist investor Mohnish Pabrai took a material stake in Q1 2025, likely attracted by the company’s asset backing, earnings torque, and capital discipline.

Near-term catalysts include easing FPSO bottlenecks, tightening rig availability, and potential short squeezes with 14% of shares sold short. Risks remain—oil below $55, safety incidents, or future overbuilding—but current valuations offer a compelling margin of safety. With tight supply and disciplined capital allocation, Valaris could plausibly triple from here.

Previously we covered a bullish thesis on Valaris Limited by Alpha Ark in February 2025, which highlighted the company’s dominant fleet, improving balance sheet, and rising offshore dayrates. The company's stock has appreciated approximately 6% since our coverage as the offshore recovery gained traction. Rich_Okra5720 shares a similar view but emphasizes cash flow torque and replacement-cost disconnect.

Valaris Limited is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 52 hedge fund portfolios held VAL at the end of the first quarter which was 49 in the previous quarter. While we acknowledge the potential of VAL as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.