Hello and welcome, Motley Fool readers. If you weren’t familiar with Carl Icahn before last week, you probably are aware of him now given the high-profile spat on CNBC between Icahn and fellow billionaire Bill Ackman. CNBC’s approval rating among viewers is at the lowest level since 2005, so maybe the Icahn/Ackman lunch hour soapbox is just what the network needed.
In any event, Icahn reported on January 13 that he had begun to accumulate shares of Transocean LTD (NYSE:RIG), a Switzerland-based entity that provides offshore contract drilling services for oil and gas wells.
My initial encounter with Transocean occurred in the weeks following the Deepwater Horizon tragedy. The stock had fallen from a high of $90 in April 2010 to a low of $46 in early June 2010. Shares traded as high as $150 in summer 2008 when the world economy endured record oil prices.
For those who aren’t aware, Deepwater Horizon is the actual name of the oil rig owned by Transocean, which entered into a long-term lease with BP from 2001 through September 2013. I followed value investor Karen Finerman’s advice to step in and buy calls on the stock in May 2010, believing the knee-jerk selloff had been overdone. Both of us were wrong, and the calls expired worthless.
Let’s fast forward to January 2013, and Transocean has announced a firm $1.4 billion settlement with the U.S. Department of Justice. The settlement puts the potential for further legal action from DOJ in the rear-view mirror for shareholders. Clearly, the market sees the settlement as a huge positive, as the amount of overhang on the stock is quickly disappearing. Shares of Transocean have rallied a massive 27% from Wednesday, January 2 through Friday, January 25.
Is the stock still worth buying at current levels? Let’s dive in and take a closer look.