We came across a bullish thesis on Transocean Ltd. (RIG) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on RIG. Transocean Ltd. (RIG)'s share was trading at $3.19 as of Feb 25^th. RIG’s forward P/E was 18.15 according to Yahoo Finance.

An oil derrick in the North Sea, revealing the scope of the company's drilling operations.

Transocean’s CEO, Jeremy Thigpen, is stepping down after nearly a decade at the helm, marking the end of an era in which he successfully steered the company through one of the toughest offshore drilling downturns without resorting to bankruptcy. His successor, Keelan Adamson, the current President and COO, has been preparing for this transition for years, and with major shareholder Frederik Mohn holding a 10% stake and a board seat, the company’s strategic direction is unlikely to change significantly. The core thesis for Transocean remains intact, as demand for offshore drilling continues to strengthen despite short-term market fluctuations.

The company’s latest quarterly results highlight this resilience, with revenues reaching $952 million, a 28% increase from the $741 million reported in Q4 2023. This growth is driven by older contracts rolling off and new ones coming online at significantly higher day rates. The disconnect between Transocean’s fundamentals and its stock price is striking—the stock remains at the same levels as October 2022, despite a vastly improved business environment. While investors may be disappointed by the slower pace of day rate increases, the broader offshore drilling industry remains structurally tight. There are no newbuild drillships on order, and with oil retaining its position as the world’s most critical commodity for decades to come, Transocean is well-positioned for sustained profitability.

EBITDA for Q4 2024 surged to $338 million, marking a 221% year-over-year increase from $105 million in Q4 2023. Interest expense remains a burden at $152 million, but even after taxes and debt amortization, the company generated a 4.44% return on its $2.95 billion market capitalization in just one quarter. With a robust $8.3 billion backlog providing visibility into future cash flows, Transocean remains far from financial distress. However, the market narrative has shifted as the rapid pace of contract awards has slowed. Ironically, Transocean, once viewed as the offshore driller with the most open capacity, now has the least whitespace available. While new contracts are expected later in the year, the company is already in the strongest position heading into 2026.

Uncertainty over a potential acquisition of Seadrill continues to weigh on Transocean’s stock. While management sees strategic merit in the deal, current valuations make an equity-funded acquisition highly dilutive to existing shareholders. However, if Seadrill’s share price weakens due to its uncontracted capacity, while Transocean’s stock rerates on improving free cash flow generation, the valuation gap could narrow. In that scenario, the acquisition could become more viable. For now, Transocean remains an undervalued play in the offshore drilling sector, with significant upside as market conditions continue to improve.

Transocean Ltd. (RIG) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 38 hedge fund portfolios held RIG at the end of the third quarter which was 30 in the previous quarter. While we acknowledge the risk and potential of RIG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RIG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.