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Transocean (RIG) Up 18.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Transocean (RIG). Shares have added about 18.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Transocean due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Transocean Posts Wider-Than-Expected Q1 Loss, Revenues Beat Mark

Transocean reported an adjusted net loss of 19 cents per share for first-quarter 2021, wider than the Zacks Consensus Estimate of a loss of 16 cents. This underperformance reflects lower utilization.

However, Transocean’s bottom line narrowed from the year-ago adjusted loss of 30 cents on impressive revenue efficiency and higher dayrates.

The offshore drilling powerhouse’s total revenues of $653 million surpassed the Zacks Consensus Estimate of $639 million. However, the top line fell 14% from the year-earlier figure of $759 million.

Segmental Revenue Break-Up

Transocean’s Ultra-deepwater floaters contributed to 66.8% of total contract drilling revenues while Harsh Environment floaters accounted for the remainder. In first-quarter 2021, revenues from Ultra-deepwater and Harsh Environment floaters totaled $436 million and $217 million, respectively, compared with the corresponding year-ago reported figures of $528 million and $220 million.

Revenue efficiency was 97.4%, higher than 97.2% reported sequentially and the year-ago value of 94.4%.

Dayrates and Utilization

Average dayrates in the quarter rose to $373,700 from the year-ago level of $314,900. The company witnessed strong year-over-year average revenues per day from Harsh Environment floaters. Overall, fleet utilization was 53% in the quarter, down from the prior-year utilization rate of 60%.

Backlog

Transocean’s backlog record at $7.4 billion as of April reflects a decline of $2.2 billion from the year-ago figure.

Costs, Capex & Balance Sheet

Operating and maintenance costs decreased to $435 million from $540 million a year ago. The company spent $59 million on capital investment in the first quarter. Cash provided by operating activities totaled $96 million. The company had cash and cash equivalents worth $1.06 billion as of Mar 31, 2021. Long-term debt was $7.1 billion with debt-to-capitalization of 38.5% as of the same date, declining from the sequential quarter’s 40%.

Guidance

For the second quarter of 2021, this offshore drilling contractor expects adjusted contract drilling revenues of $675 million, indicating sequential growth from the reported figure of $653 million. Meanwhile, it expects second-quarter operations and maintenance expenses of $445 million. Notably, its G&A expenses are expected to be $40 million while capital expenditure including capitalized interest is estimated to be $60 million.


 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -23.16% due to these changes.

VGM Scores

At this time, Transocean has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Transocean has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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