Is Transocean Sinking?

Transocean (RIG) announced third quarter ended September 30, 2015 revenue of $1.61 billion, down 14 percent sequentially from $1.88 billion in the second quarter of 2015 and a year-over-year decline of 29 percent from $2.27 billion in the third quarter of 2014.

Transocean declared third quarter of 2015 net income attributable to controlling interest of $321 million or $0.88 of diluted earnings per share compared to year-over-year net loss attributable to controlling interest of $2.22 billion or $6.12 of diluted loss per share during the same period last year.

The offshore drilling services provider reported continued year-over-year and sequential drop in its top line primarily due to the ongoing weaker global commodity demand and pricing environment coupled with the rising drilling expenditures, eating into the margins of the company.

Some positives

Transocean is observed to be having strong financial position with $5.2 billion of total liquidity as of September 30, 2015 including, $2.2 billion of cash and $3.0 billion of undrawn revolving credit facility.
The key liquids drilling company is strategically lowering/re-phasing its capital expenditures with continued enhancements in operational performance and major costs in addition to cost efficient stacking.

The key rigs drilling company is seen to be delivering sustainable operational out-performance with a notable $1.61 billion of revenue generated at an average revenue efficiency of 95.2% and non-GAAP third quarter of 2015 earnings per share of $0.87. Transocean is focused on minimizing the non-core expenditures while growing the EBITDA margins.

Despite a tough ongoing global operational scenario, Transocean has successfully maintained a healthy liquidity position with significant free cash flows and attractive margins by effectively implementing the cost-control mechanisms.

Transocean is keen on capturing significant growth opportunities arising from the ultra-deep water sources and the company is believed to be highly focused on deepwater explorations, notably enhancing its ultra-deepwater floaters, going forward and somewhat offset by the continuing depressed global commodity demand and pricing environment.

TheStreet Ratings team rates Transocean Ltd as a “Sell” with a ratings score of D+ and primarily driven by several of the company’s weaknesses which are believed to have a larger impact than any of its strengths and thus, could make difficult for investors to achieve profitability. The company's key weaknesses are observed in several areas, like disappointing cash flow from operations and usually weak historical stock price performance.

The consensus estimate among 43 polled investment analysts evaluating Transocean LTD suggests that the company would underperform the market. This consensus estimate is maintained since the investment analyst’s sentiments declined on Dec 23, 2014. The earlier consensus estimate suggested investors to hold their position in the company.

A majority of the key investment analysts are extremely disappointed about the growth prospects of Transocean considering the continuing weakness in global commodity demand and pricing environment and weaker financial position of the company.


Overall, the investors are advised to “Sell” any equity held in Transocean Ltd. looking at the company’s weaker financial position with significant total debt of $8.75 billion against weaker total cash position of $2.23 billion only, restricting the company to continue with its daily operations profitably. The profit margin of -7.32% indicate no profit but loss. Further, the PEG ratio of -0.05 signifies no growth but decline.
Published on Jan 20, 2016
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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