Did Billionaire Carl Icahn Spot an Opportunity at Transocean?

Page 1 of 2

Transocean LTD (NYSE:RIG)’s stock actually initially recovered after the Deepwater Horizon disaster, nearly reaching its pre-spill levels in the first quarter of 2011. However, the stock is down 32% in the last two years as the S&P 500 has risen over 10%; we think this is partly due to poor investor sentiment from Deepwater Horizon, partly due to financial obligations from the disaster, but primarily due to actually poorer business conditions. The stock is correlated to oil prices, since higher oil prices make offshore drilling more economical (it is considerably more expensive to drill offshore than onshore) and as a contract driller- particularly in deepwater- Transocean is tied to drilling activity.

Now reports are coming in, generally from the company itself, that billionaire activist investor Carl Icahn has bought close to 2% of the outstanding shares and may move up to a 3% stake. At its current price, Transocean’s market capitalization is $20 billion; by our math, that would make the driller one of his 10 largest stock holdings. Find more of Icahn’s favorite stocks. This is a big move for Icahn since he hadn’t owned any shares at all at the end of September, according to his 13F filing.

ICAHN CAPITAL LPA number of other billionaires’ hedge funds reported sizable positions in Transocean in their 13F filings for the third quarter of 2012. Leon Cooperman’s Omega Advisors, for example, increased its holdings by 19% to a little over 3 million shares (see Cooperman’s stock picks). SAC Capital Advisors, managed by billionaire Steve Cohen, cut its stake during the quarter but still reported a position of 1.9 million shares (check out more stocks Cohen likes). Citadel Investment Group owned 1.6 million shares (research more stocks Citadel owns); that fund is managed by billionaire Ken Griffin.

Transocean’s revenue was up 23% in the third quarter of 2012 compared to the same period in the previous year. Analyst expectations are for $4.83 per share in earnings this year, which would result in a 2013 earnings multiple of 11. The Street also has high expectations for the following several years, with Transocean’s five-year PEG ratio being 0.5. Note that this means that the company could fall short of analyst consensus and still prove a good value at the current price as long as it experiences some earnings growth. We would be worried, however, that the glut in oil due to onshore production (including from shale and other unconventional sources) will keep oil prices from rising very much, and so keep offshore activity cool for at least the next few years. If investors are interested in following Icahn, and are attracted by the bullish sell-side, that is a point they should look into before making a decision.

Transocean’s peers also have low P/E multiples:

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!