UPDATE: Guggenheim Securities Downgrades Transocean Ltd. to Neutral, Lowers PT on Revisited Risk/Reward After Indexation-Driven Mean Reversion

In a report published Friday, Guggenheim Securities analyst Darren Gacicia downgraded the rating on Transocean Ltd. RIG from Buy to Neutral, and lowered the price target from $58.00 to $53.00. In the report, Guggenheim Securities noted, “We are downgrading RIG to NEUTRAL from BUY. News that RIG will join the S&P 500 pushed shares closer to our NAV (up 5.2% since 10/21 vs. 0.4% for S&P 500). Given fleet renewal risk, cost/labor retention risk, and less of a ‘deep value' offset, our downgrade reflects a less favorable risk/reward. We are lowering our PT to $53 from $58 and 2014 EPS to $5.00 from $5.20. Both changes relay lower utilization and higher costs for RIG's fleet, especially for a number of deepwater and midwater floaters concluding contracts in 2014. In our view, these elements will reflect in a discount to NAV. RIG's fleet replacement needs scale. Internal constraints on leverage due to debt rating concerns & aversion to speculative newbuild risk hinder RIG's ability to change. We believe little apparent strategic shift since activist involvement leaves shares in limbo & EPS/dividends at risk longer term.” Transocean Ltd. closed on Thursday at $49.02.