Offshore drilling giant, Transocean Ltd. (RIG - Analyst Report) saw its shares decline 0.6% in the after-hours trading session after billionaire investor Carl Icahn slashed his holdings in the company by about three-quarters to a 1.5% stake.
Earlier, Carl Icahn had a stake of 5.88% in the Swiss offshore drilling company. However, he has now decided to reduce the equity interest to recognize a capital loss for tax planning purposes. Also, in the beginning of September, he had cited similar tax planning reasons to exit half of his stake in U.S. natural gas producer, Chesapeake Energy Corporation (CHK - Analyst Report) .
Icahn now owns 5.48 million shares of Transocean as against some 21.48 million shares held at the end of the June quarter. In Jan 2013, Icahn had increased his holdings of the company to 5.61% as he believed that the shares were undervalued. Since 2013 his holdings hovered mostly just under 6%. The recent reduction in his holdings was a move to lessen his exposure to oil-exposed companies.
Switzerland-based Transocean is the world’s largest offshore drilling contractor and leading provider of drilling management services. The company offers unmatched levels of earnings and cash flow visibility, given its technologically advanced and versatile offshore drilling fleet, strong backlog and considerable pricing power.
However, the persistent weakness in oil prices has significantly hurt Transocean's business. Also, with large, multinational energy firms looking to reign in their skyrocketing capital expenses, the drilling space is witnessing intense competition, as multiple firms chase a single contract. This excess capacity, in turn, could lead to further lowering of utilization or dayrates.
TRANSOCEAN LTD Price
Hence, Transocean currently carries a Zacks Rank #3 (Hold), implying that it will perform in line with the broader U.S. equity market over the next one to three months.
Some better-ranked players in the broader energy sector include Enbridge Inc. (ENB - Snapshot Report) and China Petroleum & Chemical Corp. (SNP - Analyst Report) . Both these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the last four quarters, Enbridge posted an average positive earnings surprise of 4.8%.
China Petroleum & Chemical, on the other hand, posted an average positive earnings surprise of 1,383.3% in the last four quarters.
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