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Transocean (RIG) Down 18.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Transocean (RIG). Shares have lost about 18.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Transocean due for a breakout? 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 Q3 Loss, Revenues Miss Mark

Transocean reported an adjusted net loss of 19 cents per share for third-quarter 2021, wider than the Zacks Consensus Estimate of a loss of 16 cents and the year-ago period’s loss of 11 cents. This underperformance reflects lower utilization.

The offshore drilling powerhouse’s total revenues of $626 million fell short of the Zacks Consensus Estimate of $655 million. Also, the top line fell 19% from the year-earlier figure of $773 million.

Segmental Revenue Break-Up

Transocean’s Ultra-deepwater floaters contributed to 68.4% of the total contract drilling revenues while Harsh Environment floaters accounted for the remainder. In third-quarter 2021, revenues from Ultra-deepwater and Harsh Environment floaters totaled $428 million and $198 million, respectively, compared with the corresponding year-ago quarter’s reported figures of $490 million and $283 million.

Revenue efficiency was 98.1%, higher than 98% reported sequentially and higher than the year-ago value of 97%.

Dayrates and Utilization

Average dayrates in the quarter rose to $367,100 from the year-ago level of $343,500. The company witnessed strong year-over-year average revenues per day from Harsh Environment floaters and Ultra-deepwater floaters. Overall, fleet utilization was 53% in the quarter, down from the prior-year period’s utilization rate of 65%.

Backlog

Transocean’s backlog record of $7.1 billion for October reflects a decline of $1.1 billion from the year-ago figure.

Costs, Capex & Balance Sheet

Operating and maintenance costs decreased to $398 million from $470 million a year ago. The company spent $37 million on capital investment in the third quarter. Cash provided by operating activities totaled $141 million. The company had cash and cash equivalents worth $900 million as of Sep 30, 2021. Long-term debt was $6.77 billion with debt-to-capitalization of 37.6% as of the same date, declining from the sequential quarter’s 38.2%.

Guidance

For the fourth quarter of 2021, this offshore drilling contractor expects adjusted contract drilling revenues of $670 million, indicating a decline from the sequentially reported figure of $683 million. It expects fourth-quarter operations and maintenance expenses of $403 million. Its G&A expenses are expected to be $46 million while capital expenditure including capitalized interest is estimated to be $96 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 36.23% due to these changes.

VGM Scores

At this time, Transocean has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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