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Why Transocean Ltd. Pulled Back Today

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Transocean Ltd. (NYSE: RIG  ) slipped nearly 2% today after RBC Capital downgraded the contract drilling giant to sector perform from outperform.

So what: Along with the downgrade, analyst Kurt Hallead lowered his price target to $54 (from $56), representing about 12% worth of upside to yesterday's close. While contrarians might be attracted to the stock's slump in recent months, Hallead believes that uncertainty surrounding dayrates and utilization should continue to limit Transocean's appreciation potential.

Now what: RBC expects Transocean to earn $5.19 per share in 2014, which is about 7% below the current Wall Street consensus. "We believe that it is too early to tell how far dayrates and utilization will slip in the current market environment," noted RBC. "We have recently reduced our dayrate estimates and built increased risk into our model for downtime between contracts." With the stock now off about 20% from its 52-week highs and currently boasting a 4.5% dividend yield, however, that short-term uncertainty might be providing patient Fools with a solid long-term income opportunity.

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  • Report this Comment On January 09, 2014, at 10:35 AM, DukeMontrose wrote:

    RIG - the fallen giant. Think of all the negatives:

    1. Oldest fleet among major peers;

    2. Self-proclaimed "difficulties" leasing units this year = please connect the dots between #1 + #2 above

    3. Federal fines totaling at least $1.4 billion = "of course" NOT included in EPS figures

    4. A super-smart minority holder who forced RIG to pay a cash dividend it can ill afford =

    please connect the dots between #3 + #4.

    The leasing "problems" especially dangerous as an idle ship is highly expensive to maintain = so expensive = the scrapyard becomes the cheaper alternative.

    5. How can you finance $600+ million a pop new units on order when you have to deal with #1, #2, #3 and #4 above?

    Sadly, RIG appears to be IMO between the rock + the hard place.

    Please dont fool around with this one, dear Fools (pun intended!).

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DocumentId: 2787875, ~/Articles/ArticleHandler.aspx, 9/3/2015 3:00:26 AM

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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Related Tickers

9/2/2015 4:00 PM
RIG $13.44 Down -0.27 -1.97%
Transocean CAPS Rating: ***