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Transocean Ltd. (NYSE: RIG) #1 Buy Prepared by: Brandon Beal, Analyst November 24, 2010 Table of Contents Valuations 2 Fundamentals 3 Notes 4       St.   L ou is   Univer s i ty   •   3674  L in de l l   Blvd,   St.   Lo ui s,   MO   63131   •   ap m. s lu . e du         Tr an so ce an   L td .   (N YSE :   RIG ) 1
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Figure 1. Analytic Summary: Transocean Ltd. Valuation Transocean Ltd. (NYSE: RIG) is rated outperform (BUY) with a 12-month price target of $77.37, 16.1% appreciation from the current price (including a declared $2.25 per share dividend in 2011) based on an assumed 2011 nominal P/E of 11.00 on estimated 2011 EPS of $7.03. The price target assumes a RPE of 0.780 (market P/E 14.1), 19.1% below the historic 5-year RPE of 0.964. Rigorous sensitivity analysis was used to produce robust 2011 EPS estimates. Revenue growth was assumed to be 7.0% in 2011 (-17% in 2010) compared to a 5-year CAGR of 27.1%. A profit margin of 22.1% was assumed for 2011 compared to the historic 5-year average of 30.68%. Despite these adverse assumptions YOY EPS growth for 2011 was 5.1%. After 2011, terminal growth was cautiously assumed to be 2.0% (EPS 5-year CAGR 16.8%, 2005-2010). Transocean’s current year RPE of 0.663 has been acutely depressed by the Macondo well incident. As the situation abates, Transocean’s 2011 RPE is projected to rise to 0.780. This projection is fortified with increased capital spending by integrated and national oil companies. The increase in spending is primarily due to oil prices, currently at $82/bbl. These elevated prices are conducive for oil exploration. The projected 2011 RPE is significantly below the 5-year RPE of .964 as is prudent to account for downside risk and a subdued world economy. In the third quarter of 2010 Transocean attributed $203 million of lost revenue to the drilling
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