FBR Capital Maintains an 'Outperform' on Transocean (RIG): Strong Cash Flow; Steady Pace of Contracts Expected

November 5, 2009 10:46 AM EST

FBR Capital maintains an Outperform rating on Transocean (NYSE: RIG) and $110 price target.

FBR analyst says, "The company's large deepwater fleet has created healthy and visible cash flows. We estimate that shares are trading at more than an 8% yield to next year's free cash flow, which provides strong support at the current price. Furthermore, expansion into the Brazilian market leaves the possibility of fleet growth open...Shares should be bolstered by strong cash flow. The company's large and growing deepwater fleet has created strong and secure cash flows that should fall straight to the bottom. We are forecasting $2.3 billion in free cash flow for 2010, which translates to more than an 8% yield as of today's share price. Consequently, shares should see a large amount of support as the company has ample room to return capital to shareholders...We expect contracts to continually surface at a steady pace given the prolonged strength in oil prices...A share repurchase is likely at hand; dividends remain on the sideline. Shareholders have approved a $3.4 billion share repurchase program, and we expect the board to authorize execution in the near future. The possibility of dividends, however, is somewhat muted by the need for shareholder approval, which could not take place until May 2010."

To see more analyst ratings on RIG Click Here.

Transocean Ltd. provides offshore contract drilling services for oil and gas wells worldwide.

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