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RIG Falls Hard on Tepid Results

|Includes: Transocean Ltd. (RIG)

RIG was down 5.51% today after it reported a 4% decline in Q4 profit year over year. It has pulled many of its shallow water jackup rigs off the depressed market. 28 of 65 are now inactive. Earnings were $2.21 -- well short of the analysts’ estimates of $2.56. Revenue declined 16%. 2010 results are now expected to be about 5% below current analysts’ estimates. The Q4 results were further driven down by a tax dispute with Brazil. This was settled for $142M. The outlook for ultra-deep water rigs is very strong. The outlook for deep water rigs is good. However, the outlook for the shallow water, jackup rigs is still tough. Much of the shallow water work in the Gulf of Mexico has already been done. Some other areas can say the same. Much more work now is in the deep water and ultra-deep water areas. This may pressure RIG’s jackup rig results for quite some time.

This is a great company, but even its deep water rig performance in 2010 may be in question as 5 of its deep water rigs are becoming available in 2010. RIG expects to find work for these rigs, but doubt persists. It is probably best to stay away from this stock in the short term. Technically it has broken through its 200-day SMA, which is negative. Plus there may be an equalization period of 2-3 weeks in which analysts may come to a lower consensus agreement on performance in 2010. This could result in further downward movement. That being said, 2011 performance should be better than 2010. Oil prices are going up worldwide. China is now the world’s largest new auto market. It will use more and more oil for gasoline. It will use still more oil for manufacturing, heating, etc. India will use more oil. It’s economy is growing quickly even in 2010. As a long term play RIG is still a great buy, even with the above problems. As a shorter term play, you may want to wait for the analysts to gain a consensus agreement. A chart of the stock is below:

1 year RIG chart:


NOTE: The Williams %R data in the chart that shows that RIG is over sold in the very near term.

Disclosure: I have no position in this stock