RIG Preview: How's the Industry?

Transocean (RIG - commentary - Trade Now) is slated to report earnings before the market opens Wednesday with a conference call scheduled for 10:00 a.m. EST. Current projections call for the company to post EPS of $2.76 on total revenue of $2.8 billion.

On the call, I'll be listening for management's comments around the state of the industry and commodity outlook. In my opinion, Transocean management has done an exceptional job managing through this volatile market. One could nitpick and suggest that the company should return some of that cash on the balance sheet to its shareholders, but Transocean has done a good job of managing rig utilization and thus keeping dayrates sufficiently high.

The company continues to focus on the deep-water market and has cold stacked a few jackup rigs over the past few quarters. I expect that trend to continue unless we see oil spike above $100 again. There is just a lot of excess capacity in the shallow-water market. Fortunately, all of the newer rigs that Transocean brought out over the past few years have exclusive multiyear deals that lock up the dayrates at pretty reasonable prices.

Essentially, we all want to hear what the outlook is for capex levels across the industry. Given what we have heard from other oilfield-service-related stocks, I believe that management will say something along the lines that the worst is behind us, we have stabilized, but we are still cautious on the next 12 to 18 months.

I like Transocean and have paired this stock with other names that are more shallow-water focused.

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At the time of publication, Thomas was long Transocean, although holdings can change at any time without notice.

Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm's senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor's degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.