Please ensure Javascript is enabled for purposes of website accessibility

Why Transocean Stock Tanked 10% at the Open Today

By Reuben Gregg Brewer - Feb 23, 2021 at 10:36AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The energy services provider had a rough fourth quarter, but that's not the only problem here.

What happened

Shares of offshore energy services company Transocean (RIG -3.17%) fell 10% in the first half hour of trading on Feb. 23. The big news, however, came after the close on Feb. 22, when Transocean reported earnings. It was tough reading. 

So what

The headline number for Wall Street was Transocean's adjusted loss of $0.34 per share in the fourth quarter of 2020. That was down from a loss of $0.11 in the third quarter and well short of the $0.19-per-share loss that analysts had been expecting. Investors don't like it when companies miss consensus estimates, so it's not all that shocking that Transocean's stock fell.  

A woman with offshore oil rigs in the background.

Image source: Getty Images.

The thing is, there was more bad news here. When the company reported fourth-quarter 2019 earnings, its backlog was $10.2 billion. In the third quarter of 2020, it reported that the backlog was $8.2 billion. The current earnings report pegs the backlog at $7.8 billion. There's still a lot of work to be done on that figure, but the declines hint that demand in the energy sector remains weak. And that doesn't bode well for the future here, even though management suggests that things will start to get better "later this year and into next year."  

Now what

Although oil prices have been on the rise of late, and have actually returned to pre-coronavirus levels, the industry still appears to be holding back on the spending front. That's a headwind for companies like Transocean that support the energy sector's drilling efforts. Backlog, something of a proxy for demand, will probably be an increasingly important metric here for investors. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Transocean Ltd. Stock Quote
Transocean Ltd.
$3.97 (-3.17%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.