Why Transocean (RIG) is Falling Today

NEW YORK (TheStreet) -- Transocean (RIG) was falling 1.2%to $42.50 Thursday on news of lower rig utilization that might not pick up for 18 to 24 months.

The offshore drilling company reported a 49% drop in profit in the fourth-quarter to $233 million, down from $456 million in the year-ago quarter. The drop in profit was due to lower rig utilization, with only 75% of Transocean's fleet used in the quarter, compared to 83% in the third quarter.

During the company's earnings call, senior vice president of marketing Terry Bonno said Transocean's partners are delaying drilling programs and are increasingly sub-letting rigs. The company said it could take 18 to 24 months for demand to recover.

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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 compelling growth in net income, revenue growth and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Energy Equipment & Services industry. The net income increased by 243.3% when compared to the same quarter one year prior, rising from -$381.00 million to $546.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.1%. Since the same quarter one year prior, revenues slightly increased by 5.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • RIG's debt-to-equity ratio of 0.66 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 1.58 is high and demonstrates strong liquidity.
  • RIG has underperformed the S&P 500 Index, declining 18.85% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • Net operating cash flow has decreased to $623.00 million or 20.73% 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.
  • You can view the full analysis from the report here: RIG Ratings Report

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