DO - Transocean: Stock Sells Off On Underwhelming Results And Guidance - Hold

2024-05-01 12:33:45 ET

Summary

• Leading offshore driller Transocean reported underwhelming Q1/2024 results with contract drilling revenues coming in below expectations and bottom line outperformance mostly the result of a large non-cash tax benefit.
• The company attributed the underperformance to delayed contract commencements, adverse weather conditions and operational issues.
• On the conference call, management issued Q2/2024 guidance below consensus expectations and reduced full-year projections for the second time within just two months.
• However, not all is bad as leading drillship rates have reached new recovery highs above $500,000 per day. With more rigs about to commence new high-margin contracts, the company's financial performance should improve materially going forward.
• While I still expect 2025 to be the year of earnings inflection for Transocean and the industry as a whole, the company's premium valuation is keeping me sidelined even after Tuesday's 10% selloff. Reiterating "Hold" while reducing my price target to $5.50.

Note:

I have covered Transocean Ltd. ( RIG ) previously, so investors should view this as an update to my earlier articles on the company. ...

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