Why Valaris Doubters Were Wrong Before A 77% Gain

If you focused on Valaris news this year, the headline was the proposed all stock takeover by Transocean that valued the offshore driller at US$5.8b and promised a hefty premium. For Valaris shareholders, the return from the start of the year was 76.8%, including dividends. If you were deciding on 1 January 2026 whether to buy, what had to be true in your mind about deepwater demand, consolidation and future contracts for that move to make sense?

The easy part of this move is behind Valaris. Zero in on 29 high quality undervalued stocks for companies trading below our estimates.

The Two Stories Valaris Investors Had In Mind

The shares cost US$50.4 at the start of the period, and anyone looking at Valaris had to choose between two very different but plausible stories about offshore drilling.

On the bullish side, one camp saw a Fair Value of US$62. This was the price implied if their expectations played out, built on stronger deepwater demand and higher day rates supporting revenue that grew 2.4% a year, with profit margins reaching 24.7%.

The bearish view pointed to a Fair Value of US$38. This was again an implied price from its own assumptions, where renewable energy pressure and client concentration meant revenue slipped 0.7% a year, even as margins rose more moderately to 17.4%.

What The Results Changed For The Valaris Debate

Valaris securing a US$5.8b all stock deal with Transocean, along with new contracts worth about US$220m and a Q2 2026 revenue efficiency of 98%, supported the bullish story on backlog and utilization. The reported results pointed the other way. Revenue slipped from US$615.2m to US$539.2m and net income fell from US$115.1m to US$50.4m, with net margin dropping from 18.7% to 9.3%. Overall, the evidence was mixed.

A key assumption was that stronger demand would quickly translate into higher margins. When you look at another contractor, track whether contract wins and utilization show up in net margin within a year, or whether they remain confined to announcements and backlog.

What Valaris Buyers Are Paying For After A 77% Run

Valaris now trades at US$92.19, well above where the year started, and the selected Narrative’s Fair Value sits below that market price. The story it tells focuses on offshore contract strength and the pending Transocean all stock merger to explain that gap.

Rather than broad optimism, the Narrative focuses on execution. A buyer at today’s level must assess whether Valaris can turn its opportunity pipeline and merger plans into durable utilisation and cash generation, without negative effects from higher costs, idle rigs or regulatory pushback.

"The main thing that has to go right is that Valaris converts its deepwater opportunity pipeline and the planned Transocean merger into sustained utilisation and cash generation without letting higher costs, idle days or regulatory scrutiny erode the benefit."

One Narrative disagrees with today's price. → See where this Narrative says Valaris should trade

Go Straight To The Source

You may be late to this rally, but that does not have to mean arriving late to every opportunity. Start with companies whose prices leave room for a different view of their future. Here are three trading below our estimates.

• Company 1 - 33% below our estimate - sells high margin AI chips and software into expanding data centre capacity.
• Company 2 - 37% below our estimate - deepens fee based consulting on complex technical, regulatory and litigation problems from AI.
• Company 3 - 42% below our estimate - supplies specialty alloys for aerospace engines while adding brownfield capacity and major projects.

Those are three of them. See the full list of 26 financially solid companies →

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