Transocean (RIG) qualifies as a penny stock as it trades below $5 per share yet it is certainly worthy of your attention as an investor. Keep in mind, plenty of stocks have jumped from penny stock status to highly-respected publicly traded companies in fairly short periods of time.

RIG is a Swiss offshore drilling contractor and drill management service, provider. RIG provides oil drilling rigs through contractual agreements with clients. RIG’s rigs are used to explore oil and gas. From offshore drilling rigs to manpower, equipment, and related services, RIG provides a little bit of everything in the oil industry. In particular, the company focuses on drilling services for deepwater projects and those performed in harsh environments.

Investors who have studied the oil and gas industry in-depth insist RIG’s fleet is one of the most versatile and modern in the entire world. However, the company has its fair share of challenges. Is RIG a solid investment or should it be considered a Hold or even a Sell? We answer this question below.

RIG Points of Note

RIG is currently trading within $1.60 of its 52-week high of $4.81. The stock’s 52-week low is a mere 65 cents. It is particularly interesting to note RIG has a beta of 3.70, meaning the stock is quite volatile when the market fluctuates.

RIG dropped 10% in a single day this past February after the company reported a loss of 34 cents per share in Q4 of 2020. This loss was significantly larger than the prior loss of 11 cents per share in the preceding quarter. Analysts anticipated a loss of a mere 19 cents per share so it should come as no surprise that the stock tanked when the official numbers were revealed. RIG’s backlog has shrunk from $10.2 billion in Q4 of ’19 to $8.2 billion in Q3 of ’20 and all the way down to the current backlog of $7.8 billion. This ongoing decline makes it clear that demand for oil and gas is still decreasing. However, there is the potential for demand to absolutely skyrocket in the summer ahead as people vacation, shop, and enjoy the greater outdoors after more than a year in lockdown.

There might also be a silver lining in the fact that RIG has $1.7 billion of cash and investments of the short-term variety. The company also has over a billion dollars of available credit to boot. However, the declining backlog will make it difficult for RIG to achieve its target of $1.1 billion worth of operating cash flow in the next couple of years.

RIG According to the Analysts

The analysts are bearish on RIG, establishing an average target price of $2.91. If the stock were to drop to this level, it would have declined by more than 11%. The analysts’ lowest target price for RIG is a mere 10 cents. Of the 15 analysts who have issued recommendations for the stock, 9 consider it a Hold, 3 consider it a Sell, 3 consider it a Strong Sell and none consider the stock a Strong Buy or Buy.

RIG POWR Ratings

RIG has a C overall POWR Rating grade. The stock has an F in the Sentiment component, a D in the Stability component, and Cs in the Momentum and Quality components. Click here to learn more about how RIG fares in the remaining POWR Rating components such as Value and Growth.

Of the 12 publicly traded companies in the Energy – Drilling space, RIG is ranked 4th. As a whole, the Energy – Drilling sector has an F rating. Investors who would like to learn more about the stocks in this space can do so by clicking here.

Buy, Sell or Hold?

RIG is ranked in the top half of those in its Energy – Drilling Sector yet it disappoints in the POWR Ratings. RIG does not have a single POWR Rating component ranked higher than a C grade, meaning investors should be patient before looking to take any action.

RIG shares fell $0.06 (-1.78%) in premarket trading Friday. Year-to-date, RIG has gained 43.29%, versus a 12.06% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...

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