Transocean LTD (RIG) — RIG stock rebounded from a multiyear low following the release of the company’s fourth-quarter and full-year results.
The offshore oil and gas drilling contractor beat analysts’ estimates, reporting a Q4 profit of $1.66 per share, well ahead of Zacks consensus estimate of 73 cents. Revenue also came in above expectations. For the full year, Transocean posted a per-share profit of $2.16, up from a loss of $5.23 in 2014.
But S&P Capital IQ Equity Research considers RIG stock to be a high-risk investment as the company’s fortunes are directly tied to capital spending decisions by oil- and gas-producing companies
Its analysts expect Transocean will post losses going forward — of $0.17 per share in 2016 and $0.85 per share in 2017. They rate RIG stock a “Hold,” but their $9 price target is almost 30% below the market price.
RIG stock has been in a decline since May 2008, when shares hit a high of $163. It reached a low of $7.67 on Feb. 24. Since that low, however, RIG stock has soared more than 75% to a high of $13.48 on Friday.
This rally was due in part to an increase in oil prices. Light, sweet crude is up more than 45% from the 13-year low made in February to nearly $38 a barrel.
Short covering likely also played a big part in the stock’s fast run-up. In mid-February, more than 132 million shares of RIG stock were held short. But average daily trading volume is about 12.4 million shares, and we saw over 27 million shares change hands on Friday and over 53 million on Monday. Therefore, much of the short position may have been covered, potentially putting shares in a price range where they could be shorted again.
Sell RIG stock short at $12.50 with a downside target of $10 for a possible gain of 20%. A stop-loss order should be entered at $14.
