It has been about a month since the last earnings report for Transocean (RIG Quick QuoteRIG - Free Report) . Shares have lost about 0.9% in that time frame, underperforming the S&P 500.

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

Transocean's Q3 Earnings Improve Y/Y, Sales Beat Estimates

Transocean reported third-quarter 2024 breakeven adjusted earnings per share, which beat the Zacks Consensus Estimate of a loss of 4 cents. The bottom line also improved from the year-ago period’s reported loss of 36 cents.  This improvement can be attributed to strong third-quarter results from RIG's segments.

This Switzerland-based offshore drilling powerhouse’s total adjusted revenues of $948 million beat the Zacks Consensus Estimate of $936 million.  The top line also increased 31.5% from the prior-year figure of $721 million. This was due to higher-than-expected revenues from ultra-deepwater and harsh environment floaters. Ultra-deepwater and harsh environment revenues surpassed the consensus mark of $666 million and $231 million, respectively.

Segmental Revenue Breakup

Transocean’s Ultra-deepwater floaters contributed 70.5% to net contract drilling revenues, while Harsh Environment floaters accounted for the remaining 29.5%.

Revenues from the Ultra-deepwater and Harsh Environment floaters totaled $668 million and $280 million, respectively, compared with the year-ago quarter’s reported figures of $516 million and $197 million. Revenues from ultra-deepwater exceeded the model projection of $684 million, while the same from harsh environment operations surpassed the projection of $256.2 million.

Revenues efficiency was 94.5%, a decrease from the previous quarter's 96.9%. This was also lower than the year-ago quarter’s 95.4%.

Day rates, Utilization & Backlog

Average day rates in the reported quarter increased to $436,800 from $391,300 in the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of $491,300.

Average revenues per day from Ultra-deepwater floaters increased to $426,700  from $406,500 in the year-ago quarter. The same from Harsh Environment floaters also increased to $464,900   from $357,400 in the comparable period of 2023.

Fleet utilization rate was 63.9% in the quarter, which increased from the prior-year period’s 49.4%.

Transocean’s backlog of $9.3 billion increased sequentially from $8.9 billion.

Costs, Capex & Balance Sheet

The company reported $800 million in costs and expenses, which was 5.3% higher than the year-ago quarter’s level of $760 million.  Additionally, operations and maintenance (O&M) costs increased to $563 million from $524 million a year ago. The oil and gas drilling company spent $58 million on capital investments in the third quarter. Cash used in operating activities was $194 million. Cash and cash equivalents were $435 million as of Sept. 30, 2024. Long-term debt amounted to $6.5 billion, with a debt-to-capitalization of 38.9% as of the same period.

Guidance

Transocean’s management anticipates generating between $950 million and $970 million in contract drilling revenues in the fourth quarter. This prediction is based on average fleet-wide midpoint revenue efficiency of 96.5%, a figure subject to variability influenced by operational uptime, weather conditions and other external factors.

The company expects to supplement its core drilling revenues with an additional $55 million to $60 million derived from services and reimbursable expenses.

RIG expects fourth-quarter O&M expenses to be approximately $585 million, indicating a quarter-over-quarter increase mainly due to higher in-service maintenance costs. This rise is attributed to activities that were deferred earlier in the year, along with a net increase in out-of-service costs, including expenses for contract preparations related to the Deepwater Invictus and the Transocean Barents.

RIG expects fourth-quarter general and administrative (G&A) expenses to be between approximately $50 million and $55 million.  The company’s net interest expense is estimated at $144 million, while capital expenditures (CapEx) and cash taxes are projected to be $35 million and $10 million, respectively.

Transocean’s management anticipates that contract drilling revenues for 2025 will be between $3.85 billion and $4 billion. This range reflects potential variances in revenue efficiency, assuming approximately 96.5% efficiency at the midpoint, along with the limited availability of the active fleet. The guidance also includes an expected $220 million to $230 million for additional services and reimbursable expenses.

The company projects full-year O&M expenses to fall between $2.3 billion and $2.45 billion, while G&A costs are expected to range from $190 million to $200 million. Preliminary estimates indicate that liquidity at the end of 2025 will be within a specified range, accounting for revenues and cost guidance, as well as an undrawn revolving credit facility and restricted cash of approximately $440 million, primarily reserved for debt service.

This liquidity forecast includes CapEx expectations of about $130 million for 2025, with roughly $60 million allocated for customer-acquired capital upgrades and capital spares, and approximately $70 million designated for sustaining capital investments.

Looking ahead to 2026, RIG has set a debt reduction target of $715 million, aiming to reduce gross debt to around $6.2 billion. The company is targeting a leverage ratio (Net Debt to EBITDA) of below 3.5x, which is a prerequisite for considering shareholder distributions. Additionally, RIG expects to maintain a high utilization rate through contract extensions and a strong focus on operational execution to achieve these financial targets.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -38.46% due to these changes.

VGM Scores

At this time, Transocean has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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 belongs to the Zacks Oil and Gas - Drilling industry. Another stock from the same industry, Patterson-UTI (PTEN Quick QuotePTEN - Free Report) , has gained 10.3% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.

Patterson-UTI reported revenues of $1.36 billion in the last reported quarter, representing a year-over-year change of +34.2%. EPS of $0 for the same period compares with $0.20 a year ago.

For the current quarter, Patterson-UTI is expected to post a loss of $0.09 per share, indicating a change of -147.4% from the year-ago quarter. The Zacks Consensus Estimate has changed -23.1% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Patterson-UTI. Also, the stock has a VGM Score of A.