It seems like today is going to be a good day for my core investments in the energy sector. First, Hess (HES) comes out with several friendly shareholder measures in an announcement before the market opened. Now Transocean (RIG) reports earnings that contain several items that should make their shareholders feel better about their holdings. The unloved oil services firm has been in my portfolio for some time now. The stock has made an impressive move recently off its beaten down valuations from the negative impacts from the Gulf Oil Spill. Given this report, the shares still seem to have plenty of room to move higher.
Positives from earnings report:
- Earnings per share came in 91 cents a share, 10 cents above consensus expectations.
- The company saw better utilization levels (79% versus 72% at same quarter in 2011) and continues to do a solid job in controlling costs. Day rates also improved over 3% Y/Y.
- The board is recommending the company restart its dividend payouts at a $2.24/share annually.
4 reasons RIG can move higher than $52 a share:
- The stock will now yield over 4% when it resumes payments in June. This is one of the highest yields among oil services stocks. It also states it has the cash flow to pay down $1B in debt by 2014.
- This is the fifth straight earnings report Transocean has easily beat expectations on the bottom line. RIG also sells for less than 9x expected 2014's projected earnings.
- Revenues are projected to grow right around 10% in both FY2013 and FY2014. The stock sports a minuscule five year projected PEG (.45).
- Another catalyst for the stock will be when the civil trial in the Gulf Oil Spill is concluded or settled. The stock is also still cheap at just 19% over book value.