Simmons Raises Price Target on Transocean (RIG) to $4.65 Following 2Q
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Simmons maintained an Underweight rating on Transocean (NYSE: RIG), and raised the price target to $4.65 (from $2.50), following the company's 2Q earnings report.
Analyst Ian Macpherson commented, "RIG’s outsized Q2 cost beat and corresponding cost guidance reduction made this an impressive result among its peer group and one which should move Street estimates for ’16-’17 materially higher. While visibility for revenue recovery is still lacking, RIG’s ongoing internal cash efficiency improvements (operationally and financially) have been commendable. Our enhanced EBITDA and FCF estimates augment our '18 EV/EBITDA PT estimate from $1.35 to $3.50 and our DCF-derived NAV from $3.65 to $5.80 bringing our PT from $2.50 to $4.65 (7.5x EV/EBITDA multiple unchanged). Notwithstanding the significant positive estimate revisions, we remain cautious on the timing and slope of the earnings recovery, as well as on current valuation levels -- e.g. RIG currently trades at 10.7x our ‘18e EV/EBITDA estimate, without a compelling case yet that ’19 earnings could improve over ’18. That said, it wouldn’t be surprising to see some near term outperformance in RIG given the elevated short interest in the stock (~25%) and magnitude of positive revisions here."
Shares of Transocean closed at $10.83 yesterday.
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