Transocean Target Slashed By Credit Suisse's Lewis, Analyst Warns It's 'Not Getting Any Easier'

Credit Suisse’s Gregory Lewis maintained an Underperform rating for Transocean Ltd RIG, while reducing the price target from $10 to $5 on indications of a likely delay in the recovery in the industry.

Transocean’s GSF DDI [6G] contract has been terminated, reducing its backlog by ~$135M. Analyst Gregory Lewis expects contract terminations to be a common feature across the industry, raising doubts over the backlog positions of industry players, including Transocean, which has a backlog of $15.5 billion.

The company booked $367 million in 4Q from early terminations on three rigs.

Transocean reported lower-than-expected adjusted EPS of $0.68, excluding one-time items of $0.98. The miss was due to higher-than-expected operating expenditure and SGA. The company’s drilling revenue was strong at $1.5 billion, driven by UDW efficiency and higher demobs.

Lewis mentioned that Transocean’s 4Q EPS was down 20 percent q/q and 1Q EPS is likely to be down 50 percent q/q. The company’s net debt to EBTIDA stands unchanged at 2.0x, but is expected to increase to 6.0x by the end of 2016 as rigs roll off contracts.

Transocean’s net debt to capital was 26 percent in 4Q, down from 29 percent in the previous quarter. The net debt to capital percentage is expected to reach 30 percent by the end of 2016, Lewis stated.