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Icahn, Drilling Demand Puts Transocean Back On Top - Research Report On Transocean Ltd.

Stocks in this article: RIG

NEW YORK, January 24, 2013 /PRNewswire/ --

Since the Deepwater Horizon incident in April 2010, the stock of Transocean Ltd. (NYSE: RIG) [ Full Research Report] (1), the world's largest offshore drilling contractor, sank over 32 percent against a backdrop of 10 percent gains in the S&P 500. But 2013 seems to be the year for Transocean to bounce back.

Transocean recently reported that billionaire business magnate and investor Carl Icahn has bought almost two percent of the outstanding shares and may move up to a three percent stake. By Q3 of 2012, Transocean's revenue was up 23 percent and analysts are bullish on the company, expecting a $4.83 per share in earnings in 2013.

After the report regarding Icahn's bid, Transocean's stock hit 3.5 percent, significantly increasing to $56.34, its highest since April 2012. Analyst Michael Romer noted that Icahn's investment is "likely to be a game changer for the firm."

Despite the 2010 disaster, Transocean remains to be the lead in the Gulf of Mexico's deep water drilling market. The drilling activity in the gulf is gathering some attention both from shallow and deep water drillers. Contract activity picks up and demand levels are steadily improving for Transocean, which will lead to higher day rates and more profitable operations. Supply and demand is in favor of the company as one of its rivals, Noble Corporation, doesn't begin new contracts and extensions until Q2 of 2013.

Icahn's bid on Transocean is very timely and has a significant effect on its road to recovery, especially now that it has agreed to pay a $1.4 billion penalty for the 2010 Gulf of Mexico oil spill. Considering Icahn's position and influence in the world of investors, many of them are likely to follow suit and gain confidence in Transocean, elevating its price in the market.

As long as it experiences some earnings growth, Transocean can prove a good value due to the ever increasing oil demand which in turn result to higher oil prices. Despite the fall, what sets the company apart from the other offshore drillers and what keeps it from bouncing back is the fact that it is the industry leader and compared to its competitors, Transocean has particularly strong deep water capabilities. The bullish sell-side also sees that the future outlook for offshore drilling industry is encouraging and the expenditure is expected to grow more than $490 billion in 2015.

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