Market Overview

Transocean Vs. Diamond Offshore: A New Oil & Gas Pair Trade

Share:
Transocean Vs. Diamond Offshore: A New Oil & Gas Pair Trade

Citigroup has identified a long/short pair trade in the offshore drilling sector as it previews third quarter results. 

A pair trade is a strategy of taking opposing positions in two highly correlated instruments in a bid to mitigate risk.

Citi upgraded shares of Transocean LTD (NYSE: RIG) from Neutral to Buy, while it downgraded shares of Diamond Offshore Drilling Inc (NYSE: DO) from Neutral to Sell.

At the time of writing, shares of Transocean were sliding 2.21 percent to $10.38 and those of Diamond Offshore were slumping 4 percent to $14.40.

This pair can work in an industry upturn or a protracted downturn, analyst Scott Gruber said in a note. It's still premature to be bullish on offshore drilling fundamentals, the analyst said. (See Gruber's track record here.) 

After prior decisions drove initial underperformance through the downturn, the gap has started to reverse for Transocean under new management, according to Citi. The firm projects a further run in either a bullish or bearish outcome.

Diamond Offshore has done a great job of navigating through the downturn — but the valuation has moved too far above the DCF fair value, Gruber said. 

Citi projects Transocean can outperform Diamond Offshore by about 80 percent in a bull scenario and by 55 percent in a bear scenario.

Related Links: 

Deutsche Bank's 3 Favorite Oil Service Picks: Patterson-UTI, Halliburton, C&J

A Host Of Upgrades For Offshore Oil Companies As RBC Sees A Recovery

Latest Ratings for RIG

DateFirmActionFromTo
Nov 2019Initiates Coverage OnSell
Oct 2019MaintainsOverweight
Sep 2019DowngradesOutperformSector Perform

View More Analyst Ratings for RIG
View the Latest Analyst Ratings

Posted-In: Citigroup diamond offshore drilling Transocean LTDAnalyst Color Upgrades Downgrades Analyst Ratings Best of Benzinga

 

Related Articles (DO + RIG)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
AMRXRaymond JamesDowngrades
MDStifelUpgrades33.0
CATStandpoint ResearchDowngrades
LULUPiperJaffrayMaintains245.0
LULUWells FargoMaintains260.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

Twitter Unlocks Rose McGowan's Account, Tries To Explain Itself

4 Biotech Stocks Initiated At Buy: Acceleron, Tesaro, Mirati, Fate