{"id":1389,"date":"2023-01-23T13:00:34","date_gmt":"2023-01-23T13:00:34","guid":{"rendered":"https:\/\/tradersontrend.com\/?p=1389"},"modified":"2023-01-23T13:00:34","modified_gmt":"2023-01-23T13:00:34","slug":"as-price-shoots-higher-is-transocean-still-a-buy","status":"publish","type":"post","link":"https:\/\/tradersontrend.com\/h\/2023\/01\/23\/as-price-shoots-higher-is-transocean-still-a-buy\/","title":{"rendered":"As Price Shoots Higher, is Transocean Still a Buy?"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"1389\" class=\"elementor elementor-1389\" data-elementor-post-type=\"post\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-b1cdae2 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"b1cdae2\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-2156dc32\" data-id=\"2156dc32\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-651f91df elementor-widget elementor-widget-text-editor\" data-id=\"651f91df\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<style>\/*! elementor - v3.21.0 - 26-05-2024 *\/\n.elementor-widget-text-editor.elementor-drop-cap-view-stacked .elementor-drop-cap{background-color:#69727d;color:#fff}.elementor-widget-text-editor.elementor-drop-cap-view-framed .elementor-drop-cap{color:#69727d;border:3px solid;background-color:transparent}.elementor-widget-text-editor:not(.elementor-drop-cap-view-default) .elementor-drop-cap{margin-top:8px}.elementor-widget-text-editor:not(.elementor-drop-cap-view-default) .elementor-drop-cap-letter{width:1em;height:1em}.elementor-widget-text-editor .elementor-drop-cap{float:left;text-align:center;line-height:1;font-size:50px}.elementor-widget-text-editor .elementor-drop-cap-letter{display:inline-block}<\/style>\t\t\t\t<h3>The Investment Thesis<\/h3><p><br \/>Energy has been the greatest-performing industry in recent years, and the offshore component appears to be late to the party, and Transocean is trying to fix it. <br \/><br \/>Transocean&#8217;s backlog rose fast in the second half of 2022, as day rates continued to rise. Transocean has a significant amount of debt on its balance sheet, which raises the risk but also raises the potential profit for investors over the next few years. <br \/><br \/>The corporation conducted debt offers in January to enhance its financial condition, and the company is primed for a solid run in the next years. <br \/><br \/>If things go as I expect in the offshore industry, Transocean could easily surpass $10 per share in 2023 and potentially higher in future years.<br \/><br \/><strong><span style=\"font-size: 24.5px; font-family: inherit;\">Debt Refinancing and an Expanding Backlogs<br \/><br \/><\/span><\/strong><span style=\"font-family: inherit;\">Transocean had two distinct debt offers in January. The <\/span><a style=\"font-family: inherit;\" href=\"https:\/\/www.offshore-energy.biz\/transocean-raising-500-million-to-partially-fund-acquisition-of-its-second-8th-gen-drillship\/\">first issue<\/a><span style=\"font-family: inherit;\"> was priced in early January for $525 million at an interest rate of 8.375%, with a maturity date of 2028. The debt is a secured issue, with the funds going to Deepwater Titan&#8217;s activities. <br \/><br \/>The <\/span><a style=\"font-family: inherit;\" href=\"https:\/\/www.wsj.com\/articles\/transocean-ltd-announces-pricing-of-1-175-billion-of-senior-secured-notes-due-2030-01673999568\">second offering<\/a><span style=\"font-family: inherit;\"> was much larger, totaling $1.175 billion. It bears an interest rate of 8.75% and the profits will be utilized to repay four rig-secured notes.<\/span><\/p><p>The interest rate is higher than the previous debt, but the maturity date is pushed back to 2030. <br \/><br \/>Three of the existing bond offerings mature in 2024, with the final maturing in 2025. <br \/><br \/>I&#8217;m interested to see what happens with the company&#8217;s debt level over the next year, but I believe things are improving for the company. <br \/><br \/>Positive changes can also be seen in the company&#8217;s backlog, which climbed considerably at the end of 2022.<\/p><p>While the extremely leveraged balance sheet is cause for concern, the quickly expanding backlog leads me to believe the company is in good shape for the next few years. <br \/><br \/>The majority of Transocean&#8217;s fleet will be repriced by the end of 2023, resulting in higher day rates and considerable cash flows. <br \/><br \/>The backlog stood at $8.3 billion at the start of the year. They announced numerous new contracts a few weeks ago, adding about $500 million to the backlog.<br \/><br \/><strong><span style=\"font-size: 24.5px; font-family: inherit;\">Valuation<br \/><br \/><\/span><\/strong><span style=\"font-family: inherit;\">The valuation is not as straightforward as it would be for a <\/span><a style=\"font-family: inherit;\" href=\"https:\/\/www.investopedia.com\/terms\/r\/reit.asp\">REIT<\/a><span style=\"font-family: inherit;\"> or a stable corporation with continuous earnings. <br \/><br \/><\/span><span style=\"font-family: inherit;\">Listening to the podcast was essential in convincing me that Transocean is undervalued. <br \/><br \/>The guest, Judd Arnold, estimated the cost of a huge new rig equivalent to what Transocean has at $1 billion (on the low end), and the industry as a whole isn&#8217;t building any new ones right now. <br \/><br \/>He also expects day rates to rise dramatically as utilization rises, with nearly all of the additional revenue going directly to the bottom line.<\/span><\/p><p>This isn&#8217;t going to be a precise computation in which I tell you how undervalued Transocean is. What I can say is that, despite Transocean&#8217;s debt-laden financial sheet, I believe shares will trade over $10 in the next twelve months, and maybe considerably higher. <br \/><br \/>The assets they have are irreplaceable, and even if fresh drill ship supply comes online, it will take at least three years to develop new ones.<br \/><br \/><strong><span style=\"font-size: 24.5px; font-family: inherit;\">Conclusion<br \/><br \/><\/span><\/strong><span style=\"font-family: inherit;\">Transocean shares have risen about 80% in the previous year and nearly 40% since the beginning of 2023, making it difficult for investors to purchase them. <br \/><br \/>Despite the expected continuation of short-term volatility, I believe the rise has legs for a long-term investor with a one to three-year time horizon. <br \/><br \/>The corporation&#8217;s balance sheet, which has an undeniably hefty debt load, is improving as the company has issued debt beginning in 2023 to extend numerous approaching maturities.<\/span><\/p><p>After significantly expanding in the second part of 2022, the backlog has continued to grow in 2023. <br \/><br \/>The valuation is difficult to pin down, but I believe that if you look at where the puck is likely to go for the industry with day rates, buying Transocean at a $4.1B market cap is a slam dunk. <br \/><br \/>I intend to defer my calls until late in the year since I believe the rally is just getting started. <br \/><br \/>I&#8217;m actually thinking about increasing to the position and have been looking closely at the January 2025 calls, which I would nibble on if shares fall in the next weeks.<\/p><p>I also intend to investigate Tidewater in the coming days, since I believe many of the same reasons to be positive on Transocean apply to Tidewater. <br \/><br \/>Transocean may be a suitable choice for those looking to acquire a stake with some speculative upside for 2023.<\/p><p><em>For More Stocks And Investment Related News, Click\u00a0<a href=\"https:\/\/tradersontrend.com\/\" target=\"_blank\" rel=\"noopener\" data-saferedirecturl=\"https:\/\/www.google.com\/url?q=https:\/\/tradersontrend.com\/&amp;source=gmail&amp;ust=1674553352105000&amp;usg=AOvVaw1kJBhIeumr0u2kLcMOtAM4\">Here<\/a>.<\/em><\/p><p>\u00a0<\/p><p>\u00a0<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>The Investment Thesis Energy has been the greatest-performing industry in recent years, and the offshore component appears to be late to the party, and Transocean is trying to fix it. Transocean&#8217;s backlog rose fast in the second half of 2022, as day rates continued to rise. Transocean has a significant amount of debt on its&#8230;<\/p>\n","protected":false},"author":1,"featured_media":1390,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[213,438,507,604],"class_list":["post-1389","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-newsletter","tag-energy","tag-oil","tag-rig","tag-transocean"],"_links":{"self":[{"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/posts\/1389","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/comments?post=1389"}],"version-history":[{"count":0,"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/posts\/1389\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/media\/1390"}],"wp:attachment":[{"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/media?parent=1389"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/categories?post=1389"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tradersontrend.com\/h\/wp-json\/wp\/v2\/tags?post=1389"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}