Another plug for offshore drilling company Transocean (RIG). The company will generate 25% of its market capitalisation in free cash flow over the next four years, FBR says. Additionally, FBR believes that record tightness in the “floater” market should push day rates for the company’s rigs yet higher:
Record tightness. Our monthly backlog report (published separately today) shows a 5% sequential increase in backlog, caused mostly by new build contracts. Backlog as a percentage of supply is at record tight levels for the 24- and 36-month time period, at 104% and 93%, respectively. This should continue to drive day rates higher.
FBR’s 2010 EPS estimate moves from $18.40 to $18.95 on higher rate expectations. FBR reiterates its Overweight rating and $182 price target.