Transocean Deserves Better Than This

The third issue is RIG's high debt level. Long-term debt represents over 45% of its total capitalization. In an environment where banks are unwilling to lend, a high debt level can be devastating. However, 80% of RIG's debt is due in 2010 and beyond, and the company has stated its intention to use free cash flow to reduce its debt levels to a more manageable level.

While acknowledging the risk of buying a company with a potentially troubling financing issue, I believe RIG's current valuation offers a reasonable margin of safety.

Subscribers to my weekly newsletter EPIC Insights, were alerted to the positive fundamentals of RIG and bought these shares Monday morning at a price of $52.39. On a day where the Dow Jones Industrial Average dropped 0.9%, subscribers have an unrealized profit on RIG of 3.8%. While the one-day performance is attractive, I maintain a fair value estimate of $75. With RIG currently 27% below my price target, I like the risk/reward framework and recommend a long position as this week's fundamental trade.