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Shares of offshore drilling giant Transocean (RIG - Free Report) gained over 6.5% in morning trading Wednesday following signs of renewed analyst optimism.
Analyst James West of Evercore upgraded Transocean from “sell” to “hold” and raised his price target to $12 from $11. West credited Transocean’s management, ability to win contracts, and extensive fleet of floating rigs as signs that the company could improve its earnings outlook soon.
Even with his optimistic stance, West warned investors that Transocean’s dayrates “are likely at or near cash breakeven levels.” West also pointed out that the offshore driller has led the industry in rig retirements recently.
Transocean was recently awarded a contract from India’s state-run Oil and Natural Gas Corporation to drill off the east coast of the country. Transocean offered a dayrate of $127k/d to operate a semi-submersible rig at the 600-meter level. The contract is for a 730-day drilling operation.
The contract in India may be welcome business for Transocean, but its offered dayrate is extremely low. The company will be hard-pressed to breakeven or turn a profit on that job, which could damage its earnings outlook.
In the near-term, Transocean’s earnings situation appears uncertain. Over the past 60 days, we have seen five positive estimate revisions against four negative revisions for the company’s current quarter earnings.
However, the long-term picture for Transocean appears much better. In that same timeframe, we have seen eight positive revisions against just two negative revisions for Transocean’s next quarter earnings. We have also seen six positive revisions against zero negative revisions for its annual earnings.
The oil sector has been volatile from top to bottom for quite a long time now, and it looks like it could still take some time for investors to regain confidence in the demand for offshore drillers. Nevertheless, Transocean appears to be showing signs of recovery.
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Why Is Transocean (RIG) Stock Gaining Today?
Shares of offshore drilling giant Transocean (RIG - Free Report) gained over 6.5% in morning trading Wednesday following signs of renewed analyst optimism.
Analyst James West of Evercore upgraded Transocean from “sell” to “hold” and raised his price target to $12 from $11. West credited Transocean’s management, ability to win contracts, and extensive fleet of floating rigs as signs that the company could improve its earnings outlook soon.
Even with his optimistic stance, West warned investors that Transocean’s dayrates “are likely at or near cash breakeven levels.” West also pointed out that the offshore driller has led the industry in rig retirements recently.
Transocean was recently awarded a contract from India’s state-run Oil and Natural Gas Corporation to drill off the east coast of the country. Transocean offered a dayrate of $127k/d to operate a semi-submersible rig at the 600-meter level. The contract is for a 730-day drilling operation.
The contract in India may be welcome business for Transocean, but its offered dayrate is extremely low. The company will be hard-pressed to breakeven or turn a profit on that job, which could damage its earnings outlook.
In the near-term, Transocean’s earnings situation appears uncertain. Over the past 60 days, we have seen five positive estimate revisions against four negative revisions for the company’s current quarter earnings.
However, the long-term picture for Transocean appears much better. In that same timeframe, we have seen eight positive revisions against just two negative revisions for Transocean’s next quarter earnings. We have also seen six positive revisions against zero negative revisions for its annual earnings.
The oil sector has been volatile from top to bottom for quite a long time now, and it looks like it could still take some time for investors to regain confidence in the demand for offshore drillers. Nevertheless, Transocean appears to be showing signs of recovery.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>