Offshore drilling powerhouse Transocean Ltd.RIG is set to release first-quarter 2017 results after the closing bell on May, 3.
In the last reported quarter, Transocean delivered a positive earnings surprise of 1475% owing to revenue efficiency and cost cutting initiatives. Coming to the earnings surprise history, the company surpassed estimates in all of the last four quarters with an average positive surprise of 879.74%. Let's see how things are shaping up for this announcement.
Factors at Play
Transocean had released its quarterly report regarding its fleet status on Apr 24. Current backlog of the company is $10.8 billion. The strong backlog of the company is expected to positively affect its earnings and cash flow visibility. The company has also been awarded two contracts with Statoil ASA STO which have raised optimism about Transocean's stock. However, the company is unlikely to benefit from these contracts before the third quarter. Further, on Mar 20, the company announced the sale of its jack up rigs to Borr Drilling for $1.35 billion. The deal will help the company to monetize its underutilized jack up fleet and will contribute positively in its earnings. Moreover, Transocean has an impressive earnings record. Investors should note that Transocean hasn't missed earnings estimates since 2013.
On the flip side, Transocean carries a staggering debt load of $3.05 billion with a debt to capital ratio of 53, which is quite high and is likely to hamper the earnings. Moreover, the company primarily offers deepwater and harsh environment drilling services, the demand for which has been drastically cut back since oil price recession with little hopes of improvement. The estimated capex budget of $500 million for 2017 can also lower earnings. All this is also reflected in the price performance of the company, which has declined by over 15% in the quarter. In fact, the company recently came up with a business update stating that the deep sea drillers might have to face challenging times due to stiff competition, contract-rollovers and limited deepwater drilling demand owing to the volatile crude environment, hurting utilization levels and day rates.
Transocean Ltd. Price and Consensus
Our proven model does not conclusively show that Transocean will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP : Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at a loss of 8 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Zacks Rank : Transocean currently carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company's ESP of 0.00% makes surprise prediction difficult.
Please note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
While earnings beat looks uncertain for Transocean categorized under Zacks Oil and Gas Drilling industry, here are some companies for investors to consider within the same industry that, according to our model has the right combination of elements to post an earnings beat this quarter:
Noble Corporation NE is expected to release first-quarter earnings results on May 5. The company has an Earnings ESP of +5% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here.
Pacific Drilling S.A. PACD is expected to release first-quarter earnings results on May 4. The company has an Earnings ESP of +7.62% and a Zacks Rank #3.
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