KLR Group Reiterates Buy on Transocean (RIG) After Adjusting Estimates

KLR Group reiterated a Buy rating and $19.00 price target on Transocean (NYSE: RIG) after adjusting estimates to reflect the changes outlined in the fleet status report. KLR adjusted 1Q16/2016/2017 EPS estimates to $0.28/($0.09)/ ($0.49) from $0.27/$0.05/($0.12).

Darren Gacicia commented, "The largest offshore driller by market capitalization, RIG shares remain volatile, but we believe the market does not appreciate the transformation story underway. We do believe RIG is sweating off old rigs, legacy overhead, and inefficient processes to emerge a better company. Post retirement of over 20 rigs, over two-thirds of the company’s value is derived from 6G assets. The percentage of younger, higher spec assets may grow with future retirements of older assets, which represent little value in our forecast. Outside of market forces and retirements, we see upside from OPEX improvements, as RIG picks the low lying fruit of cost savings from bloated overhead and inefficient processes from a lack of integration and consolidation of previous mergers. Resilient cash flows and ample liquidity to pay down ~ $1.7 billion in debt maturities through 2017, presents less risk than current debt ratings, widening Debt/EBITDA ratios, and current credit spreads suggest. With a turn in the market, and the potential to acquire distressed assets in coming quarters, our heavily discounted $19 price target (~17.4% WACC) may prove conservative."

For an analyst ratings summary and ratings history on Transocean click here. For more ratings news on Transocean click here.

Shares of Transocean closed at $10.53 yesterday.

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