Market Overview

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

Share:
Transocean Vs. Diamond Offshore: A New Oil & Gas Pair Trade
Related RIG
Earnings Scheduled For October 29, 2018
Barron's Picks And Pans: Barnes & Noble, Transocean, Visa, Western Union And More
Has Everyone Become A Trader, FAANG Holder, Or DGI Investor? (Seeking Alpha)
Related DO
Earnings Scheduled For November 5, 2018
Benzinga's Top Upgrades, Downgrades For October 12, 2018
Has Everyone Become A Trader, FAANG Holder, Or DGI Investor? (Seeking Alpha)

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
Oct 2018FearnleysUpgradesBuy
Sep 2018RBC CapitalUpgradesSector PerformOutperform
Sep 2018Morgan StanleyInitiates Coverage OnOverweight

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
ALRMImperial CapitalUpgrades58.0
ANDXSunTrust Robinson HumphreyDowngrades41.0
CMANomuraDowngrades86.0
CSLLongbow ResearchUpgrades122.0
HBANNomuraDowngrades15.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
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
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

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

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