I have been saying for a while now that Transocean (RIG) appears undervalued as it is on the verge of putting its role in the Gulf Oil Spill of 2010 completely in its rear-view mirror. The company delivered quarterly results that confirmed its improved prospects. The future for this oil services concern seemed to be turning around and the shares are still attractive at these levels
- Transocean reported EPS of $1.37, 30 cents a share above consensus.
- Quarterly revenue was up better than 5% Y/Y to $2.56B, some $90mm above expectations.
- Total fleet rig utilization was 83% in Q3 vs. 80% in the prior quarter.
- Average daily revenue for all its rigs also rose 4 percent to above $392,000 in the quarter.
- Finally, the company's backlog now stands at almost $30B.
Transocean is a leading provider of contract drilling services for the oil and gas industry and operates the world's largest fleet of mobile offshore drilling units.
Five additional reasons RIG can still rise from ~$50 a share:
- The shares yield almost five percent (4.7%) which puts a nice floor under the stock price.
- After growing slightly this fiscal year, analysts project EPS will grow more than 30% Y/Y in FY2014.
- Revenue growth is also projected to double in FY2014 compared to this fiscal year's 3% to 4% increase. The stock sells for a minuscule five-year projected PEG (.53).
- The shares sell for just over 9x forward earnings and for less than four times the EPS the company earned in FY2008 and around 5x its earnings in FY2009 prior to the Gulf tragedy.
- Insiders have a substantial stake in the company and have sold less than 1% of their shares over the last year. Noted activist Carl Icahn also holds a substantial amount of shares and can be counted on to continue to press for shareholder friendly measures.