The Razor's Edge

2-Year Price History

A Word Of Caution

Transocean Limited (RIG) has experienced a very significant loss in market value recently. Clearly this drop in price will have an impact on the valuation but the recent events that caused the drop may have not been fully factored into our analysis yet. When a stock loses value very quickly it could be a sign that there is a fear of bankruptcy.

Of course, you may proceed to review our research report for this security, but please be aware that our model may not reflect significant factors surrounding this company.

Therefore, (and as always), check additional sources and available information regarding RIG before making an investment decision.

Ockham's Rating

RIG Stock Evaluation

As noted in the Recommendation Summary, we are content with maintaining our Greatly Undervalued rating on RIG. Although there has been no additional earnings guidance offered by RIG's management in the last week, the stock price has increased by 17.72%, which is a negative from a value perspective. However, while the price increase does make the stock less attractive, it is only marginally less attractive and not enough to warrant a downgrade. Find more on this and other fundamental factors in our analysis in the paragraphs that follow.

RIG Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at RIG through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 6.09x and 3.30x respectively.

Utilizing this range we can see that RIG’s current Price to Sales per share ratio of 1.16x is significantly below its average levels historically. In fact, with a current price of $52.01, RIG is a full 76% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for RIG.

RIG Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. RIG is significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for RIG to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 16.41 and a 9.10 low over the same period.

Now that RIG’s current price is $52.01 and its Price to Cash Earnings ratio is 3.45, we are very positive on its outlook from the cash earnings perspective. In fact, RIG is now trading a full 73% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why RIG has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

RIG Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for RIG to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis. RIG does have a track record of dividend payouts to stockholders, but management has seen fit to discontinue this dividend strategy. They currently do not pay a dividend, which represents to us that management had few other options to strengthen the company's financial position.