Can Transocean (RIG) Keep the Earnings Streak Alive in Q1? - Analyst Blog

Why a Likely Positive Surprise?

Our proven model shows that Transocean is likely to beat earnings in the to-be-reported quarter because it has the right combination of two key ingredients.

Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +4.69%. This is because the Most Accurate estimate stands at 67 cents, whereas the Zacks Consensus Estimate is pegged lower at 64 cents. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.

Zacks Rank: Transocean carries a Zacks Rank#3 (Hold). The combination of Transocean’s Zacks Rank #3 and +4.69% ESP makes us confident of an earnings beat this season.

Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (Zacks Ranks #4 and 5) should never be considered going into an earnings announcement.

What Will Drive the Better-than-Expected Earnings?

While a weak commodity pricing environment is likely to impact results, the company’s cost containment measures should help financials.

The company has announced scrapping and stacking of several rigs to cope with the oversupply situation prevailing in the market. Also, Transocean has reduced its 2015 capital spending projections. These should help the company’s cash flow position.

Revenues are expected to see a sequential decline owing to the lack of new contracts and weak dayrates. However, reduction in out-of-service days could partially offset the losses. Also, the company has realized revenues for early termination of contracts. Additionally, Transocean’s backlog of about $21.2 billion should offer a cushion against the current volatile market.

Moreover, consensus estimate for the first quarter as well the full year has moved higher for Transocean, an indication of good tidings ahead.

Other Stocks to Consider

Transocean is not the only company looking up this earnings season. We see likely earnings beats coming from these energy firms as well:

Alon USA Energy, Inc. ALJ has an Earnings ESP of +10.71% and sports a Zacks Rank #1 (Strong Buy). The company is expected to release earnings on May 7.

Callon Petroleum Company CPE has an Earnings ESP of +50.00% and holds a Zacks Rank #2 (Buy). The company is expected to release earnings on May 6.

TC PipeLines, LP TCP has an Earnings ESP of +10.67% and holds a Zacks Rank #2. The company is expected to release earnings on May 7.