Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: After falling double-digits in March shares of Transocean LTD (NYSE:RIG) rebounded strongly in April as the stock surged 27% higher during the month. Fueling this surge was a rebound in oil prices as global oil benchmark Brent jumped more than 12% during the month as we see on the following chart.
Higher oil prices really were the only catalyst here as the news flow involving the company last month was clearly mixed.
So what: In fact, most of Transocean's announcements were not good news. The company started off the month by announcing that it would scrap two more rigs, which would result in the company taking a $90 million to $110 million charge in the first quarter. Then, a few weeks later, the company announced that it had a rig contract terminated early and decided to scrap yet another rig resulting in an even larger charge to be taken in the second quarter. These rig cancellations elicited negative reactions from analysts with one downgrading the stock due to a fleet that's still too old despite the number of rigs it has retired over the past year.
There was, however, one clear positive development outside of oil prices, in the quarter. Transocean hired Jeremy Thigpen as its new President and CEO. This was viewed as a positive catalyst for the company as Thigpen has a great reputation in the industry having been the CFO of National-Oilwell Varco (NYSE:NOV) and therefore has close ties with Transocean's new Chairman Pete Miller, who was previously the CEO of National-Oilwell Varco.
Now what: Unless oil prices meaningfully improve in the near term, Transocean still has several issues it needs to work out. Its fleet is much older than many of its peers, which means it will likely require additional retirements. In addition to that, the company really needs to see an improvement in the offshore rig market with contracts being awarded and not canceled. Until that happens the stock will likely continue to be quite volatile as it remains a company very much in transition.
Matt DiLallo has the following options: short August 2015 $50 puts on National Oilwell Varco. The Motley Fool recommends National Oilwell Varco. The Motley Fool owns shares of National Oilwell Varco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.