Meet 2012's Best-Performing Energy Stock

| About: Transocean Ltd. (RIG)

By Mitchell Hall

While still considerably off its 52-week high of $59.03, at $46.01 embattled energy stock Transocean (NYSE:RIG) is up 21.71% year to date.

Headquartered in Switzerland, the oil drilling company has offices in 20 countries around the world and operates ultra-deepwater rigs throughout emerging and frontier markets including Brazil, India, Malaysia, the Gulf of Mexico, Mozambique, Angola, Nigeria, Ghana, and Indonesia.

RIG has outperformed its energy stock peers this year, although revenue has "been on the decline in the past three quarters and Transocean only made a profit in one quarter so far this year," notes The Motley Fool. "On the other hand, operational cash flow has steadily increased and it has strengthened its overall cash position."

One of the world's largest offshore drilling contractors, the company is either cursed with some horrible luck, or has developed a culture of taking significant shortcuts. How else to explain the lawsuits it is currently (and for the last five years, seemingly constantly) fighting? From the Deepwater Horizon disaster in the Gulf of Mexico with BP (NYSE:BP), to last year's leak off Rio De Janeiro in Brazilian waters, to the tax fraud suit currently proceeding in Norway, the price for this otherwise highly profitable energy stock has the foot of some heavy litigation holding it under water.

While what's happened with Transocean has been terrible for stakeholders and its employees -- not to mention Transocean’s reputation -- it's not necessarily a bad thing for investors. The final stages of its legal dramas should unfold next year, and the odds seem good that Transocean can fund any payments required, especially given the assets it's currently unloading.

"Shares of the oil rig operator could surge as investors again focus on fundamentals, the deepwater-drilling market strengthens, and Transocean's operations improve," reported Barron’s.

Chevron (NYSE:CVX) has assumed responsibility for the Brazilian leak. Two weeks ago both companies agreed to change their offshore safety and operations procedures as part of a civil lawsuit, while a federal case against the companies that could have banned both from operating in Brazil was overturned.

The energy stock has a beta of 1.14, meaning it is 14% more volatile than the market, and the 31 analysts covering RIG have a median price target of $60 per share. Demand for deepwater rigs is said to be dramatically higher than the supply, and with the long-term earnings per share anticipated to be between $5 and $10, Transocean is looking cheap at 8% over book value and approximately seven times operating cash flow.

It should go without saying, but if you're planning on going long this energy stock, get in before the dividend is reinstated (i.e., before the litigation is wound up).