Analyst Actions: Transocean Inc Ests Revised, Target Price Raised at Credit Suisse; Shrs Up Nearly 3%

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4Q11 Earnings; Back on the Rails; Revising Estimates and Raising Target Price to $58 (from $55).

Back on the rails. We walked away from RIG's 4Q11 earnings results and call feeling somewhat more comfortable that the company appears to be slowly but surely getting back on track, with evidence including a return to pre-3Q11 revenue efficiency in 4Q11 and two successful (i.e. on time/budget) recent yard stays. What's more, incremental optimism regarding possible rig reactivations makes sense to us given recent market trends (RIG continues to estimate that ~1/3 of its 30+ stacked rigs are feasible reactivation candidates). That said, our estimates have been calling for some earnings boost from reactivations (most notable impact not until 2013) for some time and therefore this was not a source of upside to numbers. We remain wary of '12 yard stays, even if they are not on the highest revenue-generating rigs. And most importantly, with our fair value estimate of $58 per share, which assumes better long term revenue efficiency and margins and now $1B in Macondo liability, we see limited upside from current levels.

Tweak down 2012E EPS to $2.40 from $2.45. Our change reflects lower net interest expense guidance offset by higher opex. Greater clarity on guidance actually led us to increase our 2012E opex estimate to $6.48B from $6.4B even though management took down its range to $6.15B to $6.35B - our forecast assumes the reactivation of 6 rigs late in the year, which helps 2013, but which is not included in RIG guidance. (We boost opex by ~$20MM per jackup reactivation and $50MM per floater).

Maintain 2013E EPS of $4.70. We are raising our 2014 EPS estimate to $4.80 from $4.70. Our estimate reflects lower net interest expense and higher dayrates for deepwater rigs (+$25K on average) offset by a modest pullback in the level of reactivations we assume. Our estimates now call for 5 jackups and 5 floaters to have been reactivated between today and 2013-end vs. 7 jackups and 6 floaters previously.

Raise target price to $58 from $55. We raise our DCF-derived target price to reflect a reduction in our estimate for Macondo liabilities to $1B from $2B.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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