Deutsche Bank Sees Trouble Ahead For Transocean After CEO Departure

In a note out Tuesday morning, analyst Mike Urban of Deutsche Bank reiterated the Sell rating on shares of Transocean LTD (NYSE: RIG) and lowered the price target from $16 to $6.

In the report, Deutsche Bank wrote, "RIG proposed an 80% cut in its annual dividend to $0.60/sh from $3/sh and also announced the departure of CEO Steven Newman. Reducing the dividend frees up about $800MM/ yr and we believe the move will be viewed positively as a cut (if not elimination) was expected and accompanied by commentary from RIG's board regarding reiterating its commitment to an investment grade balance sheet, continued reinvestment in the fleet and sustainable distributions to shareholders. With negative free cash flow for the foreseeable future, a multi-billion dollar CAPEX program and a wall of upcoming debt maturities, we see these goals as mutually exclusive and reiterate out SELL rating."

Mr. Urban goes on to state that the dividend cut simply buys more time. With profitability falling rapidly, rig retirements (lower NAV), higher net debt and the likelihood of higher funding costs, Urban justified lowering the price target to $6.

Shares of RIG closed at 19.05 on Friday.