On May 24, 2013, we retained our Neutral recommendation on
offshore drilling giant
). Our investment thesis is supported by a Zacks Rank #3 (Hold).
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DAWSON GEOPHYS (DWSN): Free Stock Analysis
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Why the Reiteration?
For Transocean - the operator of the Deepwater Horizon drill rig
- the recent settlement with the U.S. government, which freed it
from some of the civil/criminal claims associated with the
accident, has removed an enormous possible monetary liability.
Nevertheless, we expect Transocean shares to remain soft until it
fully works its way through claims related to the
) oil spill.
With less oil being discovered on land and with companies having
to dig ever deeper to get to their reserves, Transocean is poised
to benefit from a market with robust multi-year demand trends,
given its technologically-advanced and versatile drilling fleet.
In particular, Transocean is the industry leader in deep sea
drilling. The company's state-of-the-art mobile offshore drilling
fleets worldwide can function in most challenging environments,
such as the North Sea.
The recent dividend approval and the settlement of a host of
civil/criminal claims associated with the Deepwater Horizon
incident have also eased the overhang on the stock.
At the same time, we acknowledge that operational issues - such
as fluctuating dayrates and costs - have held the company back.
We also remain worried about the offshore driller's high debt.
Finally, while Transocean has come a long way since the 2010
Deepwater Horizon rig disaster and settled a host of
civil/criminal claims associated with the incident, it can still
be held responsible for certain punitive damages and required to
Stocks that Warrant a Look
While we expect Transocean to perform in line with its peers and
industry levels in the coming months and advice investors to wait
for a better entry point before accumulating shares, one can look
Newpark Resources Inc.
Dawson Geophysical Co.
) as good buying opportunities. These energy equipment service
providers - sporting a Zacks Rank #1 (Strong Buy) - have solid
secular growth stories with potential to rise significantly from