Transocean Inc.
(NYSE:RIG) shares added more than 3% earlier this week after the company announced
first-quarter earnings that topped analyst estimates. The company
attributed the performance to net profits which more than doubled due
to high oil and gas prices coupled with flat operational costs.
Transocean's
conference call today addressed concerns that their drilling operations
are a cyclical business and rig rentals will fall in a year or two
along with the stock. A company officer reassured shareholders, saying
that there is so much demand for deep water drilling that the current
cycle will last well beyond 2010.
The conference call also noted
that recent deep water rig rentals from other companies soared to over
$500,000 per day - a number well below what RIG is charging.
Obviously, any rise in Transoceans' rates would provide a direct boost
to their bottom line. The reality is that oil demand is going up every
year while it continues to be a scarce resource.
Meanwhile, the
company's fundamentals continue to be attractive. The current P/E to
growth (PEG) ratio stands at just 0.46, meaning the stock is extremely
undervalued given its growth prospects. The company's forward P/E of 8x
also suggests it is undervalued. Combined, these are all factors that
make RIG a safe bet in the oil industry for the next few years.
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