Transocean Ltd. (NYSE:RIG) Is Expected To Breakeven In The Near Future
Transocean Ltd. (NYSE:RIG) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. Transocean Ltd., together with its subsidiaries, provides offshore contract drilling services for oil and gas wells in Switzerland and internationally. The US$2.5b market-cap company posted a loss in its most recent financial year of US$512m and a latest trailing-twelve-month loss of US$1.5b leading to an even wider gap between loss and breakeven. As path to profitability is the topic on Transocean's investors mind, we've decided to gauge market sentiment. Below we will provide a high-level summary of the industry analysts’ expectations for the company.
Consensus from 11 of the American Energy Services analysts is that Transocean is on the verge of breakeven. They anticipate the company to incur a final loss in 2025, before generating positive profits of US$86m in 2026. Therefore, the company is expected to breakeven just over a year from today. How fast will the company have to grow each year in order to reach the breakeven point by 2026? Working backwards from analyst estimates, it turns out that they expect the company to grow 135% year-on-year, on average, which is rather optimistic! Should the business grow at a slower rate, it will become profitable at a later date than expected.
We're not going to go through company-specific developments for Transocean given that this is a high-level summary, but, bear in mind that by and large an energy business has lumpy cash flows which are contingent on the natural resource and stage at which the company is operating. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.
View our latest analysis for Transocean
Before we wrap up, there’s one issue worth mentioning. Transocean currently has a relatively high level of debt. Typically, debt shouldn’t exceed 40% of your equity, which in Transocean's case is 70%. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.
Next Steps:
There are too many aspects of Transocean to cover in one brief article, but the key fundamentals for the company can all be found in one place – Transocean's company page on Simply Wall St. We've also put together a list of pertinent aspects you should further research:
- Valuation: What is Transocean worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Transocean is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Transocean’s board and the CEO’s background.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.