Jefferies Raises PT On Transocean Following Recent Earnings Release

According to Jefferies, although Transocean RIG is starting to look more attractive from a valuation standpoint, particularly given the upturn that appears to be materializing in the UDWmarket, Jefferies continues to rate RIG shares a Hold as higher op costs and operational issues continue to limit any near-term EPS visibility. With high oil prices and rig availability, activity in the midwater sector is showing signs of a firm pick up in activity levels based on tender activity in the North Sea, SE Asia, and India. Although pricing power does not seem imminent given that most of the work is short-term in nature, Jefferies has adjusted its model to assume the reactivation of two additional midwater rigs for 2012 as several rigs seem likely to return to work, particularly in the North Sea. Jefferies is reducing its 2011 EPS to $3.86 from $4.49 primarily to account for op cost guidance towards the high end of the previous $5.4-$5.7 Bn range and higher taxes. Jefferies is adjusting 2012 EPS to $5.98 from $6.14 and 2013 to $5.99 from $6.13 on higher taxes and op costs, which is partially offset by its assumed two midwater rig reactivations. Jefferies raises its PT to $81 from $79 and has a Hold rating on RIG RIG closed Thursday at $68.77