Transocean Permabear Sees...12% Upside?

Credit Suisse’s Gregory Lewis maintained an Underperform rating for Transocean LTD RIG, with a price target of $10. There are about 1,200 floater days contracted year-to-date, which includes approximately 250 incremental days from the company’s fleet status report.

“RIGs marketing team deserves kudos for winning ~40% of YTD floater days contracted,” analyst Gregory Lewis wrote. Management indicated that since late October, the company had won $500M in new contracts.

The drillship Thalassa has begun its 10-year contract. It is expected to generate cash flow, with about $125M projected in EBITDA annually. Moreover, the drillship Proteus is scheduled to commence its 10-year contract next quarter. Thus, Transocean is expected to have increased financial flexibility.

The company would have even more options when the startups of the Pontus and Poseidon would begin generating cash, although this is unlikely before late 2017 or 2018, Lewis mentioned.

In the report Credit Suisse noted, “RIG also announced three contracts on the Arctic (4G), MG Hulme (3G) and Cajun Express (5G), which filtered into the market over the last 3 months. We estimate the contracted days on these rigs at ~500 days and the total backlog at ~$80M.”

The analyst commented that Transocean had recently been “punching its weight in the floater market.”