Story updated at 9:50 a.m. to reflect market activity.
Transocean gained 0.8% to $39.77 in morning trading.
The firm set a price target of $45 for the offshore drilling company. The upgrade is a value call, as the sector has underperformed for so long.
"The offshore drilling group has underperformed for most of 2013 and into this year as the market downturn has weighed on the group as supply growth continues at a rapid clip," analysts Mike Urban and Jason Bandel wrote. "We are upgrading RIG to a HOLD rating from SELL as its backlog remains strong, the stock feels like its technically over-sold and it has some potential near-term catalysts with self-help initiatives and improved return to shareholders/ progress on an MLP. That said, the backdrop remains challenging and we still expect new build rates and the jackup market to roll lower later this year which is likely to temper any enthusiasm."
Separately, TheStreet Ratings team rates TRANSOCEAN LTD as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate TRANSOCEAN LTD (RIG) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 8.2%. Since the same quarter one year prior, revenues slightly increased by 0.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- RIG's debt-to-equity ratio of 0.64 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that RIG's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.57 is high and demonstrates strong liquidity.
- Net operating cash flow has decreased to $773.00 million or 16.25% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Energy Equipment & Services industry. The net income has significantly decreased by 48.9% when compared to the same quarter one year ago, falling from $456.00 million to $233.00 million.
- You can view the full analysis from the report here: RIG Ratings Report