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Transocean Ltd. (NYSE:RIG) was holding up well in yesterday's sell-off even after posting a quarterly loss yesterday. The loss was due mainly to the additional $750mm it set aside in the quarter to cover litigation costs from the 2010 gulf oil spill, which is a debacle that should see an end soon. I am impressed by the progress the company seems to be making, its cheap valuation, and solid growth prospects. The stock offers good value for long-term investors.

Key earnings highlights for Transocean:

  • Revenues came in at $2.58B for the quarter, $80mm higher than consensus estimates.
  • The company stated it is seeing better contract terms.
  • Transocean says sees lower level of out of service days in Q3 and expects costs to rise just 2% to 4% in FY2013.
  • Excluding special items, the company made 72 cents a share in the quarter, much higher than estimates of 44 cents.

Company description: "Transocean Ltd. provides offshore contract drilling services for oil and gas wells worldwide. It offers deepwater and harsh environment drilling, oil and gas drilling management, and drilling engineering and drilling project management services." (Business description from Yahoo Finance).

Four additional reasons RIG is good long-term buy at $47 a share:

  1. The 28 analysts that cover the stock have a median price target of $65 on RIG, some 40% higher than the current stock price.
  2. The stock is cheap at just 6% over book value and 9.5 times forward earnings.
  3. The stock is selling near the bottom of its five-year valuation range based on P/B as well as P/S, and now has handily beat earnings estimates for three straight quarters.
  4. Despite the gulf spill crisis, the company has been able to grow revenues north of a 14% annual clip over the past five years. Analysts expect Transocean to grow sales at around 10% for both FY2012 and FY2013.
Source: Positives Mounting For Transocean