Transocean stock price: RIG is at risk of diving as earnings miss

Transocean (NYSE: RIG) stock price continued its bearish trend this week as energy shares retreated. The shares crashed to a low of $6.51 on Monday, the lowest level since June 30th. It has dropped by more than 27% from the highest level this year, giving it a market cap of over $5.31 billion.

Transocean earnings miss

Transocean is one of the biggest companies in the offshore energy industry. The company owns and operates 37 mobile offshore drilling units. These units are made up of 28 ultra-deepwater floaters and nine harsh environment floaters. The company does the hard work for some of the biggest energy companies in the world.

Transocean share price has been in a deep sell-off in the past few weeks. The sell-off continued in October after the company filed to sell 9.89 million shares for holders. It also issued $300 million senior secured notes to finance its Aquilla rig. 

The most recent catalyst for the Transocean stock is the company’s earnings. In a statement, the company said that its total contract drilling revenue was $713 million in the third quarter. Its revenue slipped from $729 million in the same quarter in 2022.

Transocean’s revenue efficiency dropped to 95.4% while its net loss jumped to $220 million. It has a contract backlog of $9.4 billion. Like other companies, Transocean, which is a highly leveraged company, saw its interest expense jump to $232 million. This happened as interest rates in the United States and other countries surged to a multi-decade high. 

Transocean believes that the energy sector is in the early stages of the multi-year upcycle. This cycle could lead to more demand for deep sea and harsh environment drilling in the medium term.

The company faces numerous challenges ahead. For one, it is a highly leveraged company with a 12x net debt/EBITDA. Over $243 million of these funds will mature in 2024. It is also relatively overvalued compared to peers.

Transocean stock price forecast

RIG chart by TradingView

My last RIG stock price forecast did not work out as expected. Turning to the daily chart, we see that the shares formed a double-top pattern at $8.87. This pattern’s neckline was at $7.53, the lowest level on August 23rd. 

The stock has crashed to the 38.2% Fibonacci Retracement level. It has moved below the 50-day and 20-day Arnaud Legoux Moving Averages (ALMA). The shares have also formed a death cross pattern, which is usually one of the most bearish signs. 

At the same time, the Relative Strength Index (RSI) has moved to the oversold level. Therefore, the stock will likely continue falling as sellers target the 50% retracement level at $5.61. This price is about 15% below the current level.