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What’s in Store for Transocean (RIG) This Earnings Season?

Zacks

Offshore contract drilling serviceprovider Transocean Ltd. RIG is set to release fourth-quarter 2017 financial results after the closing bell on Feb 20, 2018.

Last quarter, the company delivered a positive earnings surprise of 500%. We note that Transocean has outperformed the Zacks Consensus Estimate in the preceding four quarters with an average beat of 546.9%. Investors should also note that Transocean hasn’t missed earnings estimates since 2013.

Let’s see, how things are shaping up for this announcement.

Transocean Ltd. Price and EPS Surprise


Transocean Ltd. Price and EPS Surprise | Transocean Ltd. Quote

Factors Likely to Influence This Quarter

The Zacks Consensus Estimate for operating revenues from the Harsh environment floaters is $113 million, higher than last quarter’s $106 million. Also, the consensus mark for the metric from the Deepwater floaters is $36.5 million, better than the preceding quarter’s $35 million. We also appreciate Transocean's aggressive cost-reduction programs, which might enable the company to shore up its operational performance.

However, the Zacks Consensus Estimate for operating revenues from Midwater floaters is $17.5 million, lower than last quarter’s $18 million. Also, the Zacks Consensus Estimate for operating revenues from the Ultra-Deepwater floaters is $431 million, lower than the previous quarter’s $511 million.

Transocean is facing pressure on its top line. Like other players in the offshore rig leasing industry, this company's revenues have been declining quarter after quarter as its old contracts have rolled off. Due to this, the company has either had to stack those rigs or accept much-reduced day rates inducing lower revenues. While the company’s cost-saving initiatives is likely to boost its top line, the metric will however, take some time to witness a rebound.

Earnings Whispers

Our proven model does not conclusively show that Transocean is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as elaborated below.

Zacks ESP: Transocean has an Earnings ESP of -16.40%, as the Most Accurate estimate stands at a loss of 31 cents while the Zacks Consensus Estimate is pegged higher at a loss of 27 cents. The ESP represents the percentage difference between both estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Transocean has a Zacks Rank #3. However, we need to have a positive ESP to be confident about an earnings surprise. Hence, this combination leaves surprise prediction inconclusive.

We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some other stocks worth considering from the same space as our model shows that these have the right combination of elements to beat estimates this quarter:

Houston, TX-based EOG Resources EOG is an upstream company. It has an Earnings ESP of +4.06% and a Zacks Rank of 1. It is expected to report fourth quarter results on Feb 28, 2018. You can see the complete list of today’s Zacks #1 Rank stocks here.

WildHorse Resource Development Corporation WRD, based in Houston, TX, is an independent oil and natural gas exploration and production company. It has an Earnings ESP of +4.55% and a Zacks Rank #1. It is expected to report fourth quarter results on Mar 7, 2018.

Dallas, TX-based RSP Permian, Inc. RSPP is an upstream company with an Earnings ESP of +1.64%. It is a Zacks #1 Ranked player. It is expected to report fourth quarter results on Feb 27, 2018.

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