Transocean Ltd. (NYSE:RIG) is a volatile energy stock. Like its peers Diamond Offshore Drilling Inc (NYSE:DO) and ENSCO PLC (NYSE:ESV), RIG stock has had a very rough couple of years.
But is RIG stock a value now after falling so far?
Let’s look at key factors to find out:
Price to Earnings Ratio: A key metric that value investors always look at is the Price to Earnings Ratio. On this front, Transocean has a trailing twelve months PE ratio of 7.6. This level actually compares pretty favorably with the market at large, as the P/E for the S&P 500 stands at about 20.07. If we focus on the long-term PE trend, Transocean’s current P/E level puts it slightly below its midpoint over the past five years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point. Further, the P/E of RIG stock also compares favorably with the Zacks classified Oil and Gas – Drilling industry’s trailing twelve months P/E ratio, which stands at 48.15. This indicates that the stock is significantly undervalued right now, compared to its peers.
Price to Sales Ratio: Another key metric to note is the Price to Sales ratio. Right now, Transocean has a P/S ratio of about 0.87. This is significantly lower than the S&P 500 average, which comes in at 3.11 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years. If anything, RIG is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook: In aggregate, Transocean stock currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes RIG stock a solid choice for value investors.
Growth Fundamentals: Though Transocean might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘D’ and a Momentum score of ‘B’. This gives RIG a Zacks VGM score—or its overarching fundamental grade—of ‘B’. Meanwhile, the company’s recent estimates have been mixed at best. The current quarter has seen one estimate go higher in the past sixty days compared to two lower, while the full year estimate has seen five upward and two downward revisions in the same time period. As a result the current quarter consensus loss estimate has widened by 22.2% in the past two months, while the full year loss estimate has narrowed by 10.5% over the same time frame. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Transocean Ltd. – RIG Stock Price and Consensus: This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term. Bottom Line: Transocean is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a good industry rank (Top 44% out of more than 250 industries) further supports the growth potential of the stock. However, with a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past one year, the Zacks Oil and Gas – Drilling industry has underperformed the broader market.
