Analysts’ calls and estimates
Analysts, on average, are estimating an EPS of $4.65 with revenue of $9.92 billion for 2013, which is 7.80% higher than 2012. For 2014, analysts are expecting an EPS of $5.83 with revenue of $10.86 billion, which is 9.50% higher than 2013. Overall, analysts currently have a mean target price of $60.19 for Transocean.
Fundamentally, Transocean’s key stats will be compared to its peers in the industry of oil & gas drilling, including Seadrill Ltd (NYSE:SDRL) and Noble Corporation (NYSE:NE), to see where it stands.
| Transocean | Seadrill | Noble Corporation | Industry Average | |
|---|---|---|---|---|
| Market Cap | $19.87 billion | $19.19 billion | $10.10 billion | N/A |
| P/E | 24.1 | 17.1 | 18.0 | 38.3 |
| Revenue Growth (3 Year Average) | -7.3 | 11.2 | -0.9 | -1.1 |
| Net Margin, %, ttm | -2.4% | 24.7% | 14.8% | -0.4% |
| ROE | -1.4 | 19.3 | 7.2 | -0.2 |
| ROA | -0.6 | 5.8 | 3.8 | -0.1 |
| Debt/Equity | 0.7 | 1.6 | 0.6 | 0.5 |
Source: Morningstar
Seadrill Ltd (NYSE:SDRL) provides offshore drilling services to the oil and gas industry internationally. Seadrill Ltd (NYSE:SDRL) aggressively leverages its balance sheet to upgrade and expand its rig fleet. As a result, Seadrill Ltd (NYSE:SDRL) now owns the most advanced fleet with improved safety and it enjoys higher revenue growth as compared to the industry average. Seadrill continues to generate stable quarter EBITDA and has been increasing its dividend distribution since 2010. By securing near $2.3 billion of new contracts and commitments in Q4, 2012, Seadrill is expected to report growing revenue for Q1, 2013 on May 13, 2013. Analysts are expecting 8.50% year-over-year sales growth; however, investors need to be aware that Seadrill had 3 consecutive negative earnings surprises in the last 3 quarters.
Noble Corporation (NYSE:NE) also provides offshore drilling services for the oil and gas industry and is expanding into the deep-water end. With a less leveraged balance sheet, 80% of Noble Corporation (NYSE:NE)’s backlog comes from two key customers: Shell and Petrobras. By establishing the close relationship with its key customers, Noble Corporation (NYSE:NE) could achieve more price stability as compared to other peers. As reported in the latest Q1 report, Noble has a revenue backlog of $14 billion as of March 31, 2013, where 81% of the backlog is from Noble’s semi-fleet and drillship fleet and 19% is from the jackup rig fleet. Similar to Transocean, Noble also has a solid backlog.
Due to the effect of Macondo well incident, Transocean’s numbers are well below the industry averages. However, Transocean is expected to recover and will continue to resume its growth with the world’s largest deepwater and ultra-deepwater drilling fleets.
The bottom line
With disappointing numbers due to weaker revenue efficiency, more volatility is expected for Transocean in the near-term. However, as the recovery continues for Transocean and the demand for offshore exploration grows, more upside is expected for Transocean in the long-term.
The article Buying on Weakness for This Offshore Drilling Provider originally appeared on Fool.com and is written by Nick Chiu.
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