UPDATE: RBC Capital Markets Downgrades Transocean
In a report published Wednesday, RBC Capital Markets analyst Kurt Hallead downgraded Transocean (NYSE: RIG) to Sector Perform from Outperform, dropping its price target from $56.00 to $54.00.
According to the report, RIG shares have limited upside until the market gains more confidence on the supply/demand outlook for floating rigs in 2014. Fundamentals currently continue to weaken for older floating rigs and remains unclear where dayrates and utilization bottom. However, it is believed the RIG's expected +5% dividend yield provides a limit to further downside in the stock.
“Our 2014 EPS estimate of $5.19 is currently 7% below the Street, and we expect the consensus number to fall in 1H14 due to lower than expected dayrates and downtime in between contracts,” the report noted. “We believe that it is too early to tell how far dayrates and utilization will slip in the current market environment. We have recently reduced our dayrate estimates and built increased risk into our model for downtime between contracts.”
Potential near-term catalysts included:
-”A pick up in floater demand in West Africa and Brazil.” -”Emerging market demand surprises to the upside with increased floater demand from the Middle East, SE Asia, and Mexico.”
RIG closed Tuesday at $48.13 with shares trading down at 2 percent.
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