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Transocean (RIG) Up 132.1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Transocean (RIG - Free Report) . Shares have added about 132.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Transocean due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Transocean Posts Narrower-Than-Expected Q3 Loss, Revenues Miss Mark

Transoceanreported adjusted net loss per share of 11 cents, narrower than the Zacks Consensus Estimate of a loss of 17 cents as well as the year-ago loss of 38 cents. This outperformance is led by the company’s improving utilization.

However, this offshore drilling powerhouse’s total revenues of $773 million missed the Zacks Consensus Estimate of $783 million and also the prior-year figure of $784 million, primarily on lower activity levels.

Segmental Revenue Break-Up

Transocean’s Ultra-deepwater floaters contributed to 63.4% of total contract drilling revenues while Harsh Environment floaters accounted for the remainder. In the quarter under review, revenues from Ultra-deepwater and Harsh Environment floaters totalled $490 million and $283 million each compared with the year-ago reported figures of $493 million and $281 million, respectively.

Revenue efficiency was 96.6%, lower than 97.2% reported sequentially. The figure also declined from the year-ago value of 97%.

Dayrates and Utilization

Average dayrate in the quarter rose to $343,500 from the year-ago level of $314,500. The company witnessed strong year-over-year average revenues per day from Harsh environment floaters. Overall, fleet utilization was 65% during the quarter, up from the prior-year utilization rate of 58%.

Backlog

Transocean’s backlog record at $8.2 billion as of October reflects a decline of $2.6 billion from the year-ago figure.

Costs, Capex & Balance Sheet

Operating and maintenance costs decreased to $470 million from $547 million a year ago. The company spent $65 million on capital investment in the third quarter. Cash provided by operating activities totalled $81 million. The company had cash and cash equivalents worth $1.38 billion on Sep 30, 2020. Long-term debt was $7.79 billion with debt-to-capitalization of 40.6% as of the same date, improving from the sequential quarter’s 43.6%

Guidance

For the fourth quarter, the company expects adjusted contract drilling revenues to be $710 million with a revenue efficiency of 95%.

Fourth-quarter operating and maintenance expense is projected to be approximately $445 million. Further, the company projects its G&A expense for the current quarter to be approximately $42 million.

Meanwhile, capital spending for the fourth quarter comprising capitalized interest is predicted to be almost $55 million. Besides, the amount projects nearly $37 million for the newbuild drillships under construction and the remaining $18 million for maintenance. 

For 2021, Nabors forecasts adjusted contract drilling revenues in the $2.6-$2.8 billion band. The company anticipates its operations and maintenance expense for 2021 in the $1.4-$1.6 billion range while its G&A expense is estimated between $150 million and $160 million.

Meanwhile, capital spending for 2021 comprising capitalized interest is expected to be $1.5 billion. The amount also assumes $1.4 billion for the newbuild drillships under construction and the remaining $100 billion for maintenance.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 40.67% due to these changes.

VGM Scores

At this time, Transocean has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Transocean has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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