The company announced Friday that it now expects its third-quarter earnings to include a non-cash charge of $1.97 billion tied to goodwill impairment. The charge comes from impairment testing conducted due to the decline in the market valuation of the contract drilling business. Goodwill totaled approximately $2.99 billion as of June 30.
Furthermore, Transocean expects an impairment of the Deepwater Rig asset group of $788 million thanks to decline in market outlook that reflects the recent decline in dayrates and utilization for the asset class.
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The company said it delayed its earnings release due to the complexities in determining these impairments.
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 growth in earnings per share, compelling growth in net income and attractive valuation levels. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- TRANSOCEAN LTD reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, TRANSOCEAN LTD increased its bottom line by earning $3.88 versus $2.24 in the prior year. This year, the market expects an improvement in earnings ($4.60 versus $3.88).
- 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 91.2% when compared to the same quarter one year prior, rising from $307.00 million to $587.00 million.
- RIG, with its decline in revenue, underperformed when compared the industry average of 12.7%. Since the same quarter one year prior, revenues slightly dropped by 1.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to the other companies in the Energy Equipment & Services industry and the overall market, TRANSOCEAN LTD's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- RIG's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 37.65%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- You can view the full analysis from the report here: RIG Ratings Report