Transocean (RIG) Stock Higher Despite Impairment Charge, Moody’s Downgrade


Shares of Transocean Ltd. (RIG) were trading up +0.71 or +4.43 percent to $16.75 per share in Thursday's premarket after selling off -1.3 percent in yesterday's afterhours trading. The company released its fourth quarter and full year 2014 results late yesterday after the market close. In addition to the earnings release, Moody's announced it had downgraded the oil services company's debt by one notch yesterday.

Transocean stock closed at $16.04 per share, up +0.09 or +0.56 percent in Wednesday's regular trading session.

Vernier, Switzerland based Transocean Ltd. is the largest offshore drilling contractor in the world. The company operates a fleet of 135 offshore drilling units including 71 mobile units capable of drilling in ocean depths of up to 10,000 feet. The company has the world's largest fleet of high specification rigs that include deepwater, ultra-deep water and premium jackup rigs, as well as seven deepwater drillships. Daily rates charged for leasing a drilling rig can average $300,000 per day, and as much as $650,000 for deep water drill rigs.

The company reported a net loss of -$739 million, or -$2.04 per diluted share in the three months ended on December 31st, 2014. The results for the company's fourth quarter included unfavorable items totaling $1.083 billion or -$2.99 per diluted share. The unfavorable items included $992 million, or $2.75 per diluted share consisting of a non-cash goodwill impairment, $148 million, or $0.40 per diluted share for impairments of assets held for sale and -$9 million for losses associated with the retirement of debt among other items.

After an offset of +$66 million, or +$0.18 per diluted share in positive tax benefits, Transocean earned adjusted net income of +$344 million, or $0.95 per diluted share on revenue of $2.24 billion in the fourth quarter. This compares with adjusted net income of $260 million or $0.71 per share for the fourth quarter of 2013. Analysts expected the company to report a profit of +0.77 per share on $2.1 billion in revenue.

Falling oil prices were also the main reason for Moody's downgrade of Transocean debt to "Ba1" on Wednesday, lowering it below the investment grade level to junk. Moody's said the drop in oil prices increases the company's credit risk. Fitch and Standard & Poor's continue giving Transocean debt a rating of "BBB", one level above the junk rating.

Moody's issued a note yesterday, which stated that, "The rapid drop in oil prices in late 2014 and early 2015, combined with the company's large capital commitments for the construction of new drilling rigs, has significantly increased the credit risk to Transocean's bond holders and we expect leverage to increase materially through 2017 while the market for offshore drilling contractors deteriorates."

The company underwent a large expansion, spending billions just before oil prices took a nose dive, which led to last week's resignation of the company's Chief Executive, Steven Newman. In addition, Transocean last week asked shareholders for approval to cut its quarterly dividend by -90 percent, from $0.75 to $0.15.

Transocean stock is already down over -37 percent in the last three months. Nevertheless, the stock sold off sharply in yesterday's afterhours trading only to open strong in this morning's premarket. With the price of oil at current levels, the company's stock will most likely continue under pressure in the near and medium terms.

Other News About RIG
Transocean: More Than Half Its Ultra-Deepwater Rigs Could Be Out of Work By the End of 2015, UBS Says

Analysts drop their forecast on Transocean for 2015 from +$1.36 to a loss of -$0.75 per share.

Options traders betting on a big move in Transocean's stock after results

Options traders may not fare well with the stock's limited move this morning.

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Published on Feb 26, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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