On Thursday, Transocean (NYSE:RIG) experienced a shift in stock rating as a prominent financial institution adjusted its perspective on the company's shares. The firm has been downgraded from a Buy to a Neutral position, and the price target has been revised downward to $4.50 from the previous $7.50.
The rationale behind the downgrade stems from a revised forecast methodology, which now accounts for fewer rig reactivations, increased downtime in 2025, and slightly lower rates for sixth-generation floaters. These factors have led to the anticipation of potential declines in the company's EBITDA expectations for 2025.
Despite the downgrade, the analyst acknowledged the stock's recent pullback and indicated that the market might have already priced in some of the concerns. The analyst's comments also highlighted a reshuffling of preferences among offshore drilling stocks, considering factors such as buyback and merger and acquisition potential.
In contrast to Transocean's downgrade, another offshore drilling company, Seadrill (NYSE:SDRL), has been upgraded to a Buy rating with a new price target of $52. This optimistic outlook for Seadrill is based on expectations of a high free cash flow yield above 20% for 2026, confidence in the renewal of their Brazilian rig contracts at solid rates, and a higher likelihood of being an acquisition target.
The changes in ratings and price targets reflect a broader reassessment of the offshore drilling sector, with specific companies being reevaluated based on their current operations, future prospects, and market conditions. The analyst believes that while Transocean's contract strength is well recognized, its valuation remains at a premium under more conservative assumptions, and the company could potentially be in the position to acquire Seadrill.
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