Citi Maintains a 'Buy' Rating on Transocean (RIG), Adds to Top Picks Live List
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Citi maintains a 'Buy' rating on Transocean Inc (NYSE: RIG), adds to Top Picks Live list with a $98 price target, citing several positive trends in the offshore drilling including capacity constraints which are driving increases in day rates.
Citi analyst says, "Our revised energy price forecast calls for a barrel of WTI crude oil to average $47 in 2009, $55 in 2010, $60 in 2011, and $65 in 2012. Under this price progression, which is consistent with the forward curve in oil futures, the deepwater drilling play is underpinned by solid economic returns on investment. We expect deepwater drilling to remain the highest growth market in oil services...Several positive trends in the offshore drilling business warrant a Buy rating, in our view, including capacity constraints in the floating rig markets on a worldwide basis that are driving increases in day rates. The prospects for the floating rig market are bright, in our view, because the market still appears undersupplied even after taking into account new rig construction and the recent deterioration in the global economic and credit situation. However, significant growth in the worldwide jack-up fleet over the next few years may result in pressure on day rates in the shallow water market. On balance we believe RIG shares represent a compelling opportunity because valuation on forward earnings and EBITDA is near multiyear lows. In addition, significant cash flow generation presents the possibility of value-creating transactions, such as share buybacks and new rig construction against long- term contracts."
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Transocean LTD. (Transocean), formerly Transocean Inc., is an international provider of offshore contract drilling services for oil and gas wells.
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