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Transocean (RIG) Up 29.9% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Transocean (RIG). Shares have added about 29.9% 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 the most recent earnings report in order to get a better handle on the important drivers.

Transocean Posts Wider-Than-Expected Q4 Loss, Revenues Ahead of Mark

Transocean reported an adjusted net loss of 19 cents per share for the fourth quarter of 2021, wider than the Zacks Consensus Estimate of a loss of 10 cents. This underperformance reflects a dip in revenue efficiency and lower-than-expected utilization, which, at 53.4%, missed the consensus mark of 57%.

However, Transocean’s bottom line improved from the year-ago period’s loss of 34 cents due to higher dayrates in the Harsh Environment floaters segment.

The offshore drilling powerhouse’s total adjusted revenues of $671 million beat the Zacks Consensus Estimate of $668 million. However, adjusted revenues fell 2.76% from the year-earlier figure of $690 million.

Segmental Revenue Breakup

Transocean’s Ultra-deepwater floaters contributed to 69.6% of the total contract drilling revenues, while Harsh Environment floaters accounted for the remaining 30.4%. In the fourth quarter of 2021, revenues from Ultra-deepwater and Harsh Environment floaters totaled $432 million and $189 million, respectively, compared with the corresponding year-ago quarter’s reported figures of $440 million and $250 million.

Revenue efficiency was 94.5%, lower than 98.1% reported sequentially, and lower than the year-ago value of 97.2%.

Dayrates, Utilization & Backlog

Average dayrates in the quarter rose to $352,500    from the year-ago level of $347,500 and also beat the Zacks Consensus Estimate of $333,000. RIG witnessed a strong year-over-year increase in average revenues per day from Harsh Environment floaters from $357,500 to $387,700 but a decrease in the same from Ultra-deepwater floaters from $342,100 in the year-ago quarter to $337,100. Overall, fleet utilization was 53.4% in the quarter, down from the prior-year period’s utilization rate of 58.4%.

Transocean’s backlog record of $6.5 billion for the quarter reflects a sequential decrease from $7.1 billion from the last quarter.

Costs, Capex & Balance Sheet

Operating and maintenance costs decreased to $430 million from $465 million a year ago. The company spent $71 million on capital investments in the fourth quarter. Cash provided by operating activities totaled $185 million. The company had cash and cash equivalents worth $976 million as of Dec 31, 2021. Long-term debt was $6.66 billion with debt-to-capitalization of 37.3% as of the same date, declining from the sequential quarter’s 37.6%.

Guidance

For the first quarter of 2022, this offshore drilling contractor expects adjusted contract drilling revenues of $600 million, indicating a decline from the sequentially reported figure of $671 million. For full-year 2022, It expects adjusted revenues of approximately $2.7 billion, operations and maintenance expenses of $1.7 billion. Its general and administrative expenses for the first quarter are expected at $44 million, and between $175 million and $180 million for the full year. Net interest expenses for the first quarter are forecast to be approximately $104 million and about $402 million for 2022, while the capital expenditure, including the capitalized interest for the first quarter, is estimated at $121 million. This liquidity projection includes the estimated 2022 Capital Expenditure (capex) of $1.3 billion, which includes $1.2 billion related to newbuilds and $100 million for maintenance capex.

Finally, Transocean management sees 2022 as one of the best years in a long time, with the growing customer demand and the high-specification rig usage going up.


How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -15.28% due to these changes.

VGM Scores

At this time, Transocean has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. 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 A. 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 this revision 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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