Citi Downgrades Transocean to Neutral, Citing Downside Risk to 2025 EBITDA Forecasts

Citi analysts downgraded Transocean (NYSE:RIG) to Neutral from Buy, lowering the price target on the stock to $4.50 from $7.50.

The downgrade reflects the challenges faced by offshore drillers, as the outlook for energy investors remains uncertain. While a modest increase in demand for rigs by 2026 could lead to free cash flow (FCF) yields of over 20%, the analysts' updated forecast—incorporating fewer rig reactivations, more downtime in 2025, and slightly lower rates for 6th-generation floaters—suggests downside risks to 2025 EBITDA expectations. However, the analysts noted that recent market pullbacks and investor conversations indicate that some of these concerns may already be factored into the current valuation.

As part of a broader realignment, the analysts shifted their preference to Seadrill (SDRL), upgrading it to Buy with a target price of $52, based on the company’s strong FCF yield potential and expected contract renewals for its Brazilian rigs. Meanwhile, Transocean's valuation, although bolstered by strong contracts, remains at a premium under more conservative assumptions, and the analysts speculate that Transocean could emerge as a potential suitor for Seadrill, contributing to the downgrade.