Transocean: Adjusting to change
Today's Financial News - Posted February 17, 2009
As the world’s economy slows, company’s like Transocean (NYSE:RIG) are finding their industries transformed. Investors need to adjust for the changes.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): After an incredible five-year run, when many investors ran up gains of over 500%, the run is coming to a screeching halt. Transocean (NYSE:RIG) has been smacked by the slowdown in the global economy.
Earlier today, the offshore driller announced its latest quarterly results. The figures were filled with writedowns on rigs, bought and sold, and a charge of over $200 million for goodwill. The report was filled with the same kind of nasty little accounting measures plaguing much of Wall Street.
While the company’s earnings report contained nothing overly surprising, there are two points of interest you should be aware of. First, the company tells investors that it has not found any opportunities to purchase rigs of any class.
Ocean-front real estate
Even as its competitors liquidate their operations to manage their debt, rig prices have yet to decline to the level where Transocean is willing to step in and expand its fleet. This is a signal that further writedowns are likely throughout the industry.
Speaking of signals, the company’s executives are signaling they believe shares of their company are worth buying at current prices. Transocean announced plans to ask its shareholders for permission to buy back some $3 billion worth of the company’s stock.
With few other investment options worthy of the same kind of shareholder benefits, the company feels its best use of cash is to essentially invest in itself. This is a strong clue that we should not expect much industry expansion over the next few quarters.
With continued weakness in the oil markets, few competitors will find reason to expand their fleets. Even Transocean’s decision to shell out $3 billion for ten new rigs is looking like a gamble on the future.
Investors need to realize this news officially transforms the industry from one of high-flying growth to a value-based investment. There is still room for profits, but you have to be much more selective with your choices and invest when the time is right.
The days are unreserved bullishness are over.
Next Article: John Deere: Less green, more red
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