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Martin Tillier

Martin Tillier

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Is This Energy Stock About To Pop?

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As oil has recovered from its epic fall from above $100 to below $30 in 2014/15, many oil related stocks have also regained lost ground. The recovery in stocks, however has been far from even. Some, like Diamondback Energy (FANG) recovered to hit record highs, but others have still yet to recover at all. Transocean (RIG) is in that second group. That is for good reason, but it does leave plenty of room for a big jump, and a strong case can be made right now that one is coming.

(Click to enlarge)

The main reason RIG has lagged far behind the general recovery in energy stocks is simple. They are an offshore specialist, an area that itself has been slow to recover. The improvements in fracking technology that we have heard so much about have made recovering oil on land easier and cheaper, making the cost and problems with offshore drilling less and less attractive on a relative basis. That has showed in RIG’s results.

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While most energy companies have put losses behind them, Transocean has posted negative EPS in each of the last four quarters. Despite that though, the stock has been showing some signs of recovery over the last year, gaining well over fifty percent. In part that is because in this case, EPS is only part of the story. The company has a lot of cash on hand (close to $2.9 billion) and has positive levered free cash flow of around $650 million. That strong cash position results in part from restructuring…

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