VAL - Transocean surges as Citi raises to Buy; Noble Valaris started with Buy ratings

2023-07-05 11:27:01 ET

Transocean ( NYSE: RIG ) +4.3% in Wednesday's trading as Citi upgraded the stock to Buy from Neutral with a $9.50 price target, anticipating meaningful EBITDA growth and free cash flow expansion in the coming years given dayrate appreciation and declining capex levels.

Citi forecasts EBITDA nearly doubling from ~$970M this year to $1.88B in 2025, as well as slightly positive free cash flow this year to $800M in 2024 and $1.16B in 2025; with this meaningful step-up in FCF, Transocean ( RIG ) "should have strong debt to equity conversion as it pays down its sizable debt, and as a result of this conversion, the multiple on the stock should expand," according to analysts including Nikhil Gupta.

The group also said offshore oil and gas spending can recover to 2017-18 levels, driven by activity levels in Guyana, Brazil and Namibia, and in the Middle East.

Citi also started coverage of Noble Corp. ( NE ) and Valaris ( VAL ) with Buy ratings, and Seadrill ( SDRL ) at Neutral while opening an upside catalyst watch on the stock.

Separately, Transocean ( RIG ) said Wednesday that six one-well options have been exercised for the Transocean Encourage in Norway, contributing $172M in backlog .

Also, Valaris ( VAL ) announced new contracts and contract extensions with $150M in associated contract backlog.

More on Transocean:

• Financial and valuation comparison to sector peers
• Analysis: Transocean: Total Backlog Likely To Be Down Sequentially Despite Impressive Contract Win
• Stock price return: Up 70.5% YTD, up 120.5% in the past 12 months

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