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Why Is Transocean (RIG) Down 69.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Transocean (RIG - Free Report) . Shares have lost about 69.6% 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 Posts Wider Than Expected Q4 Loss, Sales Miss Mark

Transocean Ltd. posted fourth-quarter 2019 adjusted loss of 43 cents a share, wider than the Zacks Consensus Estimate of a loss of 31 cents and also the year-ago loss of 34 cents due to higher year-over-year costs and expenses.

Meanwhile, this offshore drilling powerhouse generated total revenues of $792 million, missing the Zacks Consensus Estimate of $818 million. But the top line improved 5.8% from the prior-year figure of $748 million. Strong revenues from the Ultra-deepwater and Harsh Environment floaters along with increased dayrates led to this outperformance.

Segmental Revenue Break-Up

Transocean’s Ultra-deepwater floaters contributed to 63.4% of total contract drilling revenues while Harsh Environment floaters and Midwater floaters accounted for the remainder. In the quarter under review, revenues from Ultra-deepwater and Harsh Environment floaters totalled $502 million and $278 million each, indicating a 9.8% and 9.9% improvement from the year-ago reported figures of $457 million and $253 million, respectively.

Revenue efficiency was 96.2%, marginally lower than the third-quarter level. The figure was in line with the year-ago number.

Dayrates and Utilization

On an encouraging note, average dayrate in the quarter under review rose to $317,700 from the year-ago level of $293,100 owing to an uptick in activity in the Asia Pacific and Australia. The company witnessed year-over-year higher average revenues per day from midwater floaters. Overall, fleet utilization was 61% during the quarter, down from the prior-year utilization rate of 62%.

Backlog

Transocean’s backlog recorded at $10.2 billion as of February reflects a decline of $2 billion from the year-ago figure. Since its last fleet status update in October 2019, the company has been successful in securing $366 million worth additional contracts, courtesy of new deals and extensions of its existing projects.

Costs, Capex & Balance Sheet

Transocean’s costs and expenses rose 10.72% year over year to $836 million. Operating and maintenance costs also increased to $575 million from $497 million a year ago. The company spent $128 million on capital expenditure in the fourth quarter. Cash provided by operating activities totalled $147 million. The company had cash and cash equivalents of $1.8 billion on Dec 31, 2019. Long-term debt was $8.7 billion with debt-to-capitalization ratio of 42.28% as of the same date.

Guidance

For 2020, the company expects its adjusted contract drilling revenues to be $3.3 billion, indicating no change from the 2019 figure. Meanwhile, capital expenses for 2020 are anticipated to be $857 million.

Full-year operating and maintenance costs are predicted to be $2.1 billion.  Further, the company projects its G&A expense to be approximately of $183 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -36.47% due to these changes.

VGM Scores

Currently, Transocean has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.


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