Transocean stock jumps as it strikes a new $80M deal: is it a good buy?
Transocean stock jumped by 9% after the company announced a major contract for its Ultra-Deepwater drillship, signaling that its business was seeing substantial traction. RIG soared to $5.94, up by over 22% from its lowest level in July.
Transocean is seeing strong demand this year
Transocean is a top company in the energy industry, where it focuses on off-shore drilling for companies like Shell and Equinor. The company’s business model is relatively simple in that it receive contracts from oil and gas companies to drill and makes a fee for its service. It competes with firms like Valaris, Noble Corporation, and Seadrill.
Transocean stock rose after the company announced a new $80 million contract for work in Equitorial Guines. It expects the work to last about 170 days starting in 2027. It did not name the client.
The announcement came a few weeks after the company announced a two-year binding letter for the Dhirubhai Deepwater KG2 project in India. This project by ONGC will start in the first quarter of next year and contribute $300 million in contract. In June, the company reached a deal with Equinor valued at $1 billion.
These deals suggest that the company will turn around its operations this year. The most recent results showed that its contract drilling revenues dropped to $966 million in the second quarter from $1.08 billion in Q1. It made $988 million in the same period last year.
The results also showed that Transocean’s revenue efficiency slipped to 97% from 97.3% in the first quarter. Also, the adjusted EBITDA fell to $312 million from the $440 million it made in Q1.
Transocean’s backlog jumped to $6.7 billion in the second quarter. Together with the $1 billion for its work with Equinor, the figure stands at over $7.7 billion.
The management expects that its revenue will stabilize this year. Its estimate is that the revenue will be between $3.9 billion and $3.97 billion this year. Also, the average revenue efficiency will be about 96.5%, with the annual capital expenditure being about $150 million.
Analysts expect that Transocean’s stock will hold steady this year. Barclays has a target of $7, representing a 18% increase from the current level. Susquehanna and Morgan Stanley see the stock hitting $7, while BTIG expects it to jump to $10.
Transocean stock technical analysis
RIG stock chart | Source: TradingView
The daily chart shows that the RIG stock price has been in an upward trend in the past few months. It has formed an ascending channel, comprised of a series of higher highs and higher lows.
The stock rebounded after hitting the lower side of the ascending channel. It has now moved above the 50-day Exponential Moving Average (EMA). The Supertrend indicator has remained in the green since August 7.
Therefore, the stock will likely keep rising as bulls target the upper side of the channel, possibly at $6.50.
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