Transocean: Dark Clouds Are Starting To Lift For This Deepwater Driller

| About: Transocean Ltd. (RIG)

I penned an article back in late December on why I thought Transocean (NYSE:RIG) and Diamond Offshore (NYSE:DO) were undervalued and should have strong performances in 2012. Both stocks have turned in very solid gains since the article and given recent events I think Transocean still has some further to go even with the almost 20% gain since my piece ran in Seeking Alpha.

Key recent events for RIG

  • The company just received an important court win against BP p.l.c. (NYSE:BP) around the gulf oil spill.
  • Mario Gabelli immediately chimed in that this ruling should shield RIG from most of the liability from the gulf oil tragedy and reiterated his firm's "Buy" rating on the stock.
  • Although Noble Corporation (NYSE:NE) recently had a slightly disappointing earnings report, utilization in the Gulf of Mexico increased significantly which bodes well for demand for Transocean's rigs there as drilling increases.

4 reasons RIG is still a good buy at $47 a share:

  • The company is selling at less than 8 times operating cash flow and yields almost 7% in dividends currently.
  • The median analysts' price target on RIG is now $60 which is almost 30% above current prices.
  • Even after the recent pop, the stock still sells near the bottom of its five year valuation range based on P/B, P/S, and P/CF.
  • The stock is gaining strength and just crossed its 50 day moving average (see chart).

Disclosure: I am long RIG, DO, BP.

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