Switzerland-based Transocean (RIG), one of the world’s largest offshore drilling firms, agreed to a number of things Monday, including raising its dividend, increasing its cost cuts and spinning off some of its assets in a new partnership. All of this comes from a plan set forth by activist investor Carl Icahn, who currently controls just about 6% of the company’s shares.
More specifically, Transocean stock will pay a $3 per share dividend, cut the number of board seats from 14 to 11 and take a second employee of Icahn’s to the board. As a result of the firm’s partial agreement to Icahn’s plan, the activist investor has made commitments restricting his future moves toward RIG.
While the $3 a share dividend still is subject to approval at the company’s annual meeting next May, the fact that Icahn gets a second one of his employees to be on the RIG board is a vote of confidence for investors that the dividend will get approval. Furthermore, with a second employee on the board, Icahn is likely in this deal for more than just the short-term, meaning Transocean stock could well drive higher with further moves inspired by Icahn.
In other recent news for RIG, on Nov. 6, the company reported third-quarter earnings of $1.37 per share vs. the estimated $1.07, beating by 30 cents. Transocean stock jumped after the earnings announcement and rallied even further Monday after the agreement with Carl Icahn.
The long-term weekly chart of RIG shows that shares have formed a series of higher lows over the course of the past year-and-a-half. With RIG’s sharp rally over the past week, it has also come closer to a downtrend line in place since early 2010, and a lateral resistance line (red dotted line). An eventual push past this confluence resistance area, currently near $60, would be bullish on the long-term charts.
On the short-term chart of Transocean, note that after last week’s earnings announcement, RIG stock gapped above its 200-day moving average as well as a first diagonal resistance line. During the past three days, RIG has rallied almost 13% in a vertical fashion, bumping Transocean stock into its May highs. From here, while still very constructively positioned in the medium-term, the stock from a pure risk/reward point of view in the near-term shouldn’t be chased higher.
Traders and investors looking at RIG stock from the long side are better off waiting for some consolidation to set in before picking a spot to buy.
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the “Essence of Swing Trading” eBook by clicking here. At the time of publication, Berger had no positions in the securities mentioned.