We expect Transocean Ltd. (RIG), the industry leader in deep sea drilling, to beat expectations when it reports second-quarter 2013 results after the market closes on Aug 7, 2013.
Why a Likely Positive Surprise?
Our proven model shows that Transocean has the right combination of two key factors to beat earnings.
Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate of $1.10 and the Zacks Consensus Estimate of $1.06, stands at +3.77%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #3 (Hold): The stocks with a Zacks Rank #1 (Strong Buy), Zacks Rank #2 (Buy) and Zacks Rank #3 (Hold) have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered while going into an earnings announcement.
The combination of Transocean’s Zacks Rank #3 (Hold) and +3.77% ESP makes us confident of an earnings beat.
What is Driving the Better-Than-Expected Earnings?
With less oil being discovered on land and companies having to dig ever deeper to get their reserves, Transocean is poised to benefit from a market with robust multi-year demand trends, given its technologically advanced and versatile drilling fleet.
We expect Transocean’s latest fleet status report highlighting an increase in the day-rate for some of its projects and hinting at its cost saving potential to have positive implications on its earnings.
Transocean’s strong backlog – over $28 billion – enables it to navigate the current environment better than many of its peers. Recently, the company acquired contracts worth approximately $180 million.
We view management’s decision to share additional income with shareholders as a positive. In June, the company paid its shareholders $0.56 per share as dividend. This was the first of the four slated quarterly dividends annualized to $2.24 per share.
Other Stocks to Consider
Given below are some other energy firms that are worth considering as these also have the right combination to post an earnings beat this quarter:
Natural Gas Services Group Inc. (NGS) has an earnings ESP of +3.57% and a Zacks Rank #1 (Strong Buy).
Enerplus Corp. (ERF) has an earnings ESP of +4.17% and a Zacks Rank #1 (Strong Buy).
Oasis Petroleum Inc. (OAS) has an earnings ESP of +3.33% and a Zacks Rank #3 (Hold).
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