Will Transocean's (RIG) Revenue Efficiency Boost Q1 Earnings?
Transocean Ltd. RIG is set to release first-quarter results on May 1. The current Zacks Consensus Estimate for the to-be-reported quarter is a loss of 20 cents per share on revenues of $641.8 million.
Let’s delve into the factors that might have influenced the offshore driller’s performance in the March quarter. But it’s worth taking a look at RIG’s previous-quarter results first.
Highlights of Q4 Earnings & Surprise History
In the last reported quarter, the Switzerland-based rig supplier missed the consensus mark due to a decline in revenues from contract drilling. Transocean had reported an adjusted loss per share of 49 cents, 30 cents wider than the Zacks Consensus Estimate. Revenues of $625 million generated by the firm also came in below the Zacks Consensus Estimate of $632 million.
RIG beat the Zacks Consensus Estimate for earnings twice in the last four quarters and missed in the other two, resulting in an earnings surprise of -29%, on average. This is depicted in the graph below:
Transocean Ltd. Price and EPS Surprise
Transocean Ltd. price-eps-surprise | Transocean Ltd. Quote
Trend in Estimate Revision
The Zacks Consensus Estimate for the first-quarter bottom line has remained unchanged in the past seven days. The estimated figure indicates a 28.6% improvement year over year. The Zacks Consensus Estimate for revenues, meanwhile, suggests a 4.4% increase from the year-ago period.
Factors to Consider
Transocean is expected to have benefited from an uptick in utilization. As a reflection of the improvement in the drilling landscape, the Zacks Consensus Estimate for the first-quarter average utilization is pegged at 54%, up 1% from a year earlier on the back of increased activity. The year-over-year improvement in utilization has most likely buoyed Transocean’s revenues and cash flows.
On a further bullish note, the company forecasts revenue efficiency to average an impressive 96.5% in the to-be-reported quarter. This is an indication of minimal loss of revenues due to downtime and Transocean’s superior efficiency in translating its industry-leading backlog of $8.6 billion into cash.
On a somewhat bearish note, the increase in Transocean’s costs might have dented its to-be-reported bottom line. RIG’s total costs and expenses were $664 million in the fourth quarter, up 4.6% from the previous quarter. The upward cost trajectory is likely to have continued in the first quarter due to the ongoing inflationary environment and tight labor market.
What Does Our Model Say?
The proven Zacks model does not conclusively show that Transocean is likely to beat estimates in the first quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, for this company is -3.96%.
Zacks Rank: RIG currently carries a Zacks Rank #3.
Stocks to Consider
While an earnings beat looks uncertain for Transocean, here are some firms from the energy space that you may want to consider on the basis of our model:
Sunoco LP SUN has an Earnings ESP of +5.66% and a Zacks Rank #1. The firm is scheduled to release earnings on May 2.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for SUN’s 2023 earnings has been revised 1.4% upward over the past 60 days. Valued at around $4.5 billion, Sunoco has gained 8.5% in a year.
Targa Resources TRGP has an Earnings ESP of +3.26% and a Zacks Rank #2. The firm is scheduled to release earnings on May 4.
For 2023, Targa Resources has a projected earnings growth rate of 53.6%. Valued at around $17.1 billion, TRGP has gained 0.7% in a year.
Canadian Natural Resources CNQ has an Earnings ESP of +4.29% and a Zacks Rank #3. The firm is scheduled to release earnings on May 4.
Canadian Natural Resources delivered a four-quarter average earnings surprise of 10.5%. Valued at around $64.9 billion, CNQ has lost 2.3% in a year.
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Transocean Ltd. (RIG) : Free Stock Analysis Report
Sunoco LP (SUN) : Free Stock Analysis Report
Canadian Natural Resources Limited (CNQ) : Free Stock Analysis Report
Targa Resources, Inc. (TRGP) : Free Stock Analysis Report
