On Wednesday, Barclays (LON:BARC) shifted its stance on Transocean (NYSE:RIG), upgrading the stock from Equalweight to Overweight and setting a price target of $4.50. The firm's analysis indicates that while the offshore drilling sector has seen a period of underperformance due to a slowdown in offshore tenders, softer dayrates, and scheduling gaps for several drillers, Transocean has managed to secure contracts for its entire fleet of deepwater rigs through 2026.
The stock has experienced significant volatility, with InvestingPro data showing a 42.2% decline year-to-date and currently trading near its 52-week low of $3.54.
The Barclays analyst highlighted Transocean's financial outlook, noting the company's expectation to generate $700 million in free cash flow (FCF) next year. This is seen as a positive step towards reducing the company's debt, with a projected net debt to EBITDA ratio falling below 4x.
According to InvestingPro, the company currently maintains a healthy current ratio of 1.64, indicating sufficient liquid assets to meet short-term obligations. The price target of $4.50 is based on a rig-by-rig discounted cash flow (DCF) model, which assumes mid-cycle dayrates of $450,000 per day for uncontracted rigs in future years.
The upgrade reflects Barclays' view that contracting activity for offshore drilling is likely to rebound in late 2025, driven by a combination of new deepwater development projects and an uptick in exploration activity. This anticipated increase in contracting aligns with Transocean's current contracted fleet status and its financial strategy aimed at de-leveraging.
Barclays' revised price target of $4.50 for Transocean, unchanged from its previous target, now suggests a 23% upside potential from the stock's current levels.
This adjustment in rating and the positive outlook on the stock's future performance come at a time when the industry is navigating a challenging environment with several drillers facing uncertainties in their operational schedules.
Based on InvestingPro's comprehensive analysis, which includes over 30 financial metrics and key insights available in the Pro Research Report, Transocean appears to be slightly overvalued at current levels.
In other recent news, offshore drilling contractor Transocean Ltd (NYSE:RIG). reported strong third quarter financial results, with an adjusted EBITDA of $342 million and contract drilling revenues of $948 million. Despite a net loss of $494 million for the quarter, the company's total backlog increased by 7.5% to $9.3 billion, indicating significant contracts secured for the coming years.
In addition to these earnings and revenue results, Transocean Ltd. has strategically relocated certain subsidiaries to Bermuda, continuing to operate under the same rights and obligations. The shift is part of a broader operational strategy, with no immediate financial implications disclosed by the company. Transocean's fourth-quarter contract drilling revenue is forecasted between $950 million and $970 million, with 2025 revenue projections between $3.85 billion and $4 billion. The company is also targeting a gross debt reduction to approximately $6.2 billion.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.