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Why Transocean's Long-Term Outlook Is Full of Uncertainty

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Why Transocean's Long-Term Outlook Is Full of Uncertainty PART 1 OF 8

Is Transocean’s Share Price Showing Strength?

Transocean versus industry ETF

Transocean (RIG) is one of the most well-known US oilfield equipment and service (or OFS) providers in the US. Its share has trended down in the stock market in 2015. On December 23, RIG was trading at $13.12. This was ~23% lower than its price at the beginning of this year.

The VanEck Vectors Oil Services ETF (OIH), an ETF tracking the index of 25 OFS companies, has fallen 28% during the same period. Weatherford International (WFT), RIG’s larger market cap peer, has also declined 28% since January 2. Compared to RIG’s $4.8 billion market capitalization, WFT’s market capitalization currently stands at ~$6.9 billion. RIG is 3.4% of OIH. The entire OFS industry has been negatively affected by the energy price crash since June 2014.

Is Transocean’s Share Price Showing Strength?

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What does RIG’s share price movement tell us?

Since the beginning of this year, Transocean’s share price reached its year-to-date high of ~$21.3 in mid-May. RIG released its fiscal 1Q15 results in the first week of May. Although RIG’s net income deteriorated quarter-over-quarter, its operating income (or EBITDA) and free cash flow improved.

Also, RIG slashed its quarterly dividend from $0.75 per share to $0.15 per share in May. Its share price fell 46% until late August. Quarter-over-quarter, the company’s net income fall decelerated in fiscal 3Q15 while EBITDA continued to improve. On October 29, RIG canceled its fiscal 3Q15 and 4Q15 dividend installments. Until November 23, RIG’s share price has rallied 13% since its August low.

RIG’s moving averages

On December 23, RIG’s share price was at a 9.4% discount to its 50-day moving average. The stock is trading 15% below its 200-day moving average.

Moving averages exhibit a smoother trend following the stock’s price movement. A 50-day moving average is a short-term moving average while a 200-day moving average shows a long-term trend. RIG’s short-run moving average has consistently been below the long-run moving average throughout the year. Until September, RIG’s stock price had also been below the long-run moving average. This indicated the bearishness in RIG’s share price. However, since September, RIG’s stock price has crossed over its short-run and long-run moving averages a few times, indicating bullishness.

RIG’s stock currently faces the 50-day moving average at $14.5 as a short-term upside resistance. Its 200-day moving average is currently at $15.4.

Next, we will discuss what RIG’s management thinks about its outlook.

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