BP plc (ADR) (BP), Transocean LTD (RIG): Does the Gulf of Mexico Oil Spill Still Haunt these Stocks?

This combination of strong operating performance and a stagnating stock price has caught the attention of famed activist investor Carl Icahn, who has become increasingly involved with Transocean over the past couple of years. Icahn, now the largest Transocean LTD (NYSE:RIG) shareholder, holds a nearly 6% stake worth $1 billion, and has stated his belief that the company is undervalued.

The final verdict
It appears that Transocean is more likely to come out of this unscathed, relative to BP plc (ADR) (NYSE:BP)’s situation. Transocean is, for the most part, back to business-as-usual, and its underlying results have firmed in recent periods.

BP, meanwhile, is still spending huge amounts of money on continuing claims, and is almost certainly going to pay billions more once the civil trial concludes.  At the same time, BP is a huge company, and has prepared well for further costs with aggressive asset sales. The company should have the financial flexibility to endure even a severe penalty from the civil trial.

In addition, it seems a great deal of the financial damage has been priced into BP shares.  Including BP’s $42 billion in damages paid to date, $10 billion in settlements with local businesses and assuming another $10 billion in civil liability, that takes the total tab to $62 billion.

As it happens, BP has already lost roughly $60 billion in market value since the spill.  Therefore, it seems the pain is largely priced in.

Moreover, investors can take comfort in the fact that they are being paid well to wait for both BP and Transocean to put this issue behind them once and for all. Each stock pays a competitive dividend. Transocean and BP currently yield 4.9% and 5.2%, respectively.  As a result, while Transocean probably has a smoother road ahead of it than BP in the near-term, both stocks look like long-term winners.

The article Does the Gulf of Mexico Oil Spill Still Haunt these Stocks? originally appeared on Fool.com and is written by Robert Ciura.

Robert Ciura owns shares of BP p.l.c. (ADR). The Motley Fool owns shares of Transocean. 

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