Transocean (RIG) Moves 5.9% Higher: Will This Strength Last?

Transocean RIG shares soared 5.9% in the last trading session to close at $5.71. The move was backed by solid volume with far more shares changing hands than in a normal session. This compares to the stock's 26.8% gain over the past four weeks.

Transocean’s share price rose yesterday, largely due to investors reacting positively to the company’s announcement of a planned $5.8 billion all-stock acquisition of offshore driller Valaris. The deal is expected to significantly expand Transocean’s fleet by adding drillships, semisubmersible rigs, and a sizable jackup business. It is also expected to push the combined company’s drilling backlog to approximately $10 billion, with expected annual synergies of around $200 million. With healthy demand for offshore drilling and stronger cash flow prospects from the enlarged fleet and longer-term contracts, market sentiment shifted, driving shares of the Switzerland-based oil and gas drilling provider higher that day.

This offshore oil and gas drilling contractor is expected to post quarterly earnings of $0.09 per share in its upcoming report, which represents a year-over-year change of +200%. Revenues are expected to be $1.04 billion, up 9.1% from the year-ago quarter.

Earnings and revenue growth expectations certainly give a good sense of the potential strength in a stock, but empirical research shows that trends in earnings estimate revisions are strongly correlated with near-term stock price movements.

For Transocean, the consensus EPS estimate for the quarter has remained unchanged over the last 30 days. And a stock's price usually doesn't keep moving higher in the absence of any trend in earnings estimate revisions. So, make sure to keep an eye on RIG going forward to see if this recent jump can turn into more strength down the road.

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>

Transocean is part of the Zacks Oil and Gas - Drilling industry. Seadrill (SDRL), another stock in the same industry, closed the last trading session 3.2% higher at $41.18. SDRL has returned 12.5% in the past month.

Seadrill's consensus EPS estimate for the upcoming report has changed -104.8% over the past month to $0.07. Compared to the company's year-ago EPS, this represents a change of -93.5%. Seadrill currently boasts a Zacks Rank of #4 (Sell).

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This article originally published on Zacks Investment Research (zacks.com).

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