It's shaping up to be a tough period for Transocean Ltd. (NYSE:RIG), which a week ago released some disappointing first-quarter results that could have a notable impact on how the market views the stock. Revenues missed expectations somewhat, coming in at US$759m, but statutory earnings fell catastrophically short, with a loss of US$0.64 some 105% larger than what the analysts had predicted. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Transocean after the latest results.
After the latest results, the consensus from Transocean's 18 analysts is for revenues of US$3.02b in 2020, which would reflect a measurable 2.5% decline in sales compared to the last year of performance. The loss per share is expected to greatly reduce in the near future, narrowing 51% to US$1.19. Before this earnings announcement, the analysts had been modelling revenues of US$3.13b and losses of US$1.01 per share in 2020. So it's pretty clear the analysts have mixed opinions on Transocean after this update; revenues were downgraded and per-share losses expected to increase.
There was no major change to the consensus price target of US$3.32, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Transocean at US$10.00 per share, while the most bearish prices it at US$0.50. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely different views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue shrink 0.7% per year. So it's pretty clear that Transocean sales are expected to decline at a faster rate than the wider industry.
The Bottom Line
The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at Transocean. Unfortunately they also downgraded their revenue estimates, and our analysts estimates suggest that Transocean is still expected to perform worse than the wider industry. The consensus price target held steady at US$3.32, with the latest estimates not enough to have an impact on their price targets.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Transocean going out to 2023, and you can see them free on our platform here.
Even so, be aware that Transocean is showing 3 warning signs in our investment analysis , you should know about...
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