The last time I wrote about Transocean Ltd. (NYSE:RIG) I stated, "…I'm going to layer into my position here." After the writing the article it popped 2.7% but then proceeded to decline a whopping 11.08% versus the 0.25% loss the S&P 500 (NYSEARCA:SPY) posted. It's quite unfortunate that I did plow additional money into the company at the time. Transocean is an international provider of offshore contract drilling services for oil and gas wells.
On November 06, 2013, the company reported third quarter earnings of $1.37 per share, which beat the consensus of analysts' estimates by $0.30. In the past year the company's stock is down 23.94% excluding dividends (up 20.65% including dividends), and is losing to the S&P 500, which has gained 20.32% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the basic materials sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 9.3, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 8.21 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $5.21 per share and I'd consider the stock inexpensive until about $78. The 1-year PEG ratio (0.36), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced based on a 1-year EPS growth rate of 26%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 26%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 18.72%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 5.23% with a payout ratio of 49% of trailing 12-month earnings while sporting return on assets, equity and investment values of 4.9%, 10.2% and 5.4%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 5.23% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock bounced off of oversold territory on 10Feb14 and has a current value of 41.51 with upward trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars increasing in height, indicating bullish momentum but looks to be getting stretched here. As for the stock price itself ($42.79), I'm looking at $44.63 to act as resistance and $40.33 to act as support for a risk/reward ratio which plays out to be -5.75% to 4.3%.
The drilling industry remains under pressure with quite a few downgrades at the beginning of the month but this is a stock which boasts a great dividend yield. I believe it is important to select stocks which are undervalued and Transocean is one of those names in this industry. Fundamentally the company is inexpensively priced based on 2015 earnings and on future growth potential. Financially the dividend payout ratio is pretty low for now. On a technical basis I believe the bullish momentum is getting long in the tooth. Due to the inexpensive valuation on next year's earnings, slightly bullish technicals, and high dividend yield I'm going to be buying a small position at this price. I'm only buying a small position because I'm still a bit worried about the industry and any further downgrades.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!