According to 1 year analyst price targets these three offshore drillers present significant upside in 2024.
Noble Corporation – 2024 Upside 36%
Noble is profitable with a reasonable P/E of 13.3. Revenue growth was up 54% in 2023 however forecasted revenue growth for 2024 is only 3%. Strong profitability versus Transocean and Diamond Offshore are apparent with a 22% operating income margin. EPS is projected to improve in 2024 and 2025 based on analyst consensus.
Noble has a decent backlog of $4.6 billion and has a potential to expand future revenue and backlog if they can deploy their 6 idle/stacked rigs.
Leverage is low with only $586mm in long term debt benefiting from their 2020 Chapter 11 reorganization that eliminated $3.4 billion in debt.
Diamond Offshore – 2024 Upside 56%
Diamond Offshore is marginally profitable. Revenue growth was up 26% in 2023 however revenue is forecasted to decline in 2024 by 5%. EPS is projected to improve in 2024 and 2025 based on analyst consensus.
Diamond Offshore has a low backlog of $1.4 billion and has limited potential to expand future revenue and backlog with only 2 idle/stacked rigs. They will be dependent in growth in day rates.
Leverage is low with only $534mm in long term debt benefiting from their 2021 Chapter 11 reorganization that eliminated $2.1 billion in debt.
Transocean – 2024 Upside 35%
Transocean is not profitable. They have been repositioning their fleet and have incurred significant expenses according to management in 2023 in this effort. Revenue growth was up 10% in 2023. Transocean has the largest revenue upside according to analysts with a 28% increase forecasted in 2024. 2024 revenue growth should leverage their costs and significantly improve profitability. They have the most available rigs to deploy in a tightening market. EPS is projected to improve in 2024 and 2025 based on analyst consensus.
Transocean has the biggest backlog of $9.0 billion and has significant potential to expand future revenue and backlog with 12 idle/stacked rigs. They have also been experiencing material gains in day rates with the highest quality fleet in the industry.
Leverage is extremely high with at $7.4 billion in long term debt presenting significant risk if the market turnaround stalls. Transocean did not file for bankruptcy therefore they are still working their way out of the COVID downturn.
An interesting consideration is the value of Transocean assets. The asset book cost is $23.9 billion versus their Enterprise Value of only $11.3 billion representing a material discount. The replacement cost for their fleet would be even higher than the current asset book cost given today’s higher cost to build a new rig. With the tightening market for rigs and the low pipeline of new rig construction, Transocean is trading significantly below the underlying value of their assets.
Recap
Offshore drillers present a value play in 2024 for investors. Transocean remains my choice given their asset quality, revenue growth upside, and significant equity creation if they can successfully retire debt considering the current upcycle in the industry. However, it must be noted that Transocean is the risker investment versus Noble and Diamond Offshore based on their leverage.
Below is a recap of my analysis.
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