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Transocean (RIG) Up 3.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Transocean (RIG - Free Report) . Shares have added about 3.3% 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 Wider-Than-Expected Q1 Loss

Transocean reported an adjusted net loss of 28 cents per share for the first quarter of 2022, wider than the Zacks Consensus Estimate of a loss of 22 cents. This underperformance reflects a fall in revenues from the year-ago quarter and lower-than-expected utilization, which, at 53%, missed the consensus mark of 54%.

Moreover, RIG’s bottom line worsened from the year-ago period’s loss of 19 cents.
 
The offshore drilling powerhouse’s total adjusted revenues of $615 million beat the Zacks Consensus Estimate of $605 million. However, adjusted revenues fell 4.3% from the year-earlier figure of $653 million.

Segmental Revenue Breakup

Transocean’s Ultra-deepwater floaters contributed to 66.5% of the total contract drilling revenues, while Harsh Environment floaters accounted for the remaining 33.5%. In the first quarter of 2022, revenues from the Ultra-deepwater and Harsh Environment floaters totaled $390 million and $196 million, respectively, compared with the corresponding year-ago quarter’s reported figures of $436 million and $217 million.

Revenue efficiency was 94.9%, higher than the 94.5% reported sequentially but lower than the year-ago value of 97.4%.

Dayrates, Utilization & Backlog

Average dayrates in the quarter declined to $334,500 from the year-ago level of $373,700 but beat the Zacks Consensus Estimate of $319,000. RIG witnessed a strong year-over-year increase in average revenues per day from Harsh Environment floaters from $377,800 to $399,100 but a decrease in the same from Ultra-deepwater floaters from $371,600 in the year-ago quarter to $305,600. Overall, fleet utilization was 52.7% in the quarter, up marginally from the prior-year period’s utilization rate of 52.6%.

Transocean’s backlog record of $6.1 billion for the quarter reflects a sequential decrease from $6.5 billion in the last quarter.

Costs, Capex & Balance Sheet

Operating and maintenance costs decreased to $412 million from $435 million a year ago. The company spent $106 million on capital investments in the first quarter. Cash used in operating activities stood at $1 million. The company had cash and cash equivalents worth $911 million as of Mar 31, 2022. The long-term debt was $6.37 billion, with a debt-to-capitalization of 36.4% as of the same date.

Guidance

For the second quarter of 2022, this offshore drilling contractor expects adjusted contract drilling revenues of $705 million and second-quarter operations and maintenance expenses are projected at approximately $460 million. For full-year 2022, Transocean anticipates adjusted revenues of approximately $2.7 billion and operations and maintenance expenses of $1.7 billion. Its general and administrative expenses for the second quarter are expected at around $50 million and between $180 million and $185 million for the full year. Net interest expenses for the second quarter are forecast to be approximately $98 million and about $395 million for 2022. The liquidity projection includes the estimated 2022 Capital Expenditure (capex) of $1.3 billion, which includes $1.2 billion related to newbuilds and $80 million for maintenance capex.

Finally, cash taxes are expected at about $10 million for the second quarter and roughly $28 million for the year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

The consensus estimate has shifted 5.36% due to these changes.

VGM Scores

At this time, Transocean has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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

Performance of an Industry Player

Transocean is part of the Zacks Oil and Gas - Drilling industry. Over the past month, Nabors Industries (NBR - Free Report) , a stock from the same industry, has gained 7.1%. The company reported its results for the quarter ended March 2022 more than a month ago.

Nabors reported revenues of $568.7 million in the last reported quarter, representing a year-over-year change of +23.2%. EPS of -$13.88 for the same period compares with -$20.16 a year ago.

For the current quarter, Nabors is expected to post a loss of $6.70 per share, indicating a change of +62.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -7.5% over the last 30 days.

Nabors has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.


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