2014

The Zacks Analyst Blog Highlights: American International Group, Baker Hughes, Transocean, Diamond Offshore Drilling and Ensco

CHICAGO, May 9, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include American International Group Inc. (NYSE: AIG), Baker Hughes Inc. (NYSE: BHI), Transocean Ltd. (NYSE: RIG), Diamond Offshore Drilling Inc. (NYSE: DO) and Ensco plc (NYSE: ESV).

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Here are highlights from Wednesday's Analyst Blog:

S&P Lifts AIG's P&C Unit

Standard & Poor's Ratings Services (S&P) has upgraded the financial strength of American International Group Inc.'s (NYSE: AIG) property & casualty (P&C) segment, formerly known as Chartis Group. The elevation acknowledges the segment's improved operating leverage.

Accordingly, S&P has lifted the long-term counterparty credit rating and financial-strength rating (FSR) of AIG P&C from "A" to "A+", which is the 5th highest position on the rating table. This marks the first upgrade since 2008. Additionally, the ratings agency affirmed its "A+" rating on AIG life and retirement services' segment. AIG's senior debt remains pegged at "A-". All the ratings carry a stable outlook.

AIG has come a long way post its financial crisis, according to S&P. The full repayment of the government bailout loan has injected financial flexibility into the company and helped management concentrate completely on generating higher operating leverage. Meanwhile, asset disposals in the last few years have left AIG with a focused core-business portfolio, thereby strengthening its competitive leverage.

Core operations' growth on track

AIG's life insurance and retirement service operations have been improving on account of stability in surrender activity along with recoupment of higher investment returns, aided by improved base yields due to the recovery in the financial market over the past couple of years. Although the low rate environment limits the desired upside, this segment has the potential to generate higher earnings.The segment's pre-tax earnings escalated about 82% year over year to $1.57 billion in the first quarter of 2013, while it rose 28% to $3.78 billion in 2012 from $2.96 billion in 2011.

Further, the ratings agency remains confident of AIG's P&C business based on its strong brand name, underwriting capability and global expansion of a multilateral product portfolio. The company repositioned its P&C portfolio to strengthen its underwriting capacities, whereas the ongoing restructuring and re-pricing initiatives will likely drive earnings growth in the near future. The pre-tax income further surged about 76% year over year to $1.6 billion in the first quarter of 2013, generating $231 million in underwriting income against a loss of $180 million in the year-ago quarter along with an improved combined ratio.

Nat Gas Rig Count at 18-Year Low

In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (NYSE: BHI) reported a rise in the U.S. rig count (number of rigs searching for oil and gas in the country). This upside can be mainly attributed to an increase in the tally of oil-directed rigs, partially offset by lower natural gas rig count that fell to its lowest level in nearly 18 years.

The Baker Hughes' data, issued since 1944, acts as an important yardstick for drilling contractors like Transocean Ltd. (NYSE: RIG), Diamond Offshore Drilling Inc. (NYSE: DO), Ensco plc (NYSE: ESV), etc. in gauging the overall business environment of the oil and gas industry.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,764 for the week ended May 3, 2013. This was up by 10 from the previous week's rig count and indicates the first increase in 3 weeks.

The current nationwide rig count is more than double the lowest level reached in recent years (876 in the week ended Jun 12, 2009), though it is way below the prior-year level of 1,965. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending Aug 29 and Sep 12.

Rigs engaged in land operations ascended by 9 to 1,690, offshore drilling was up by 2 to 51 rigs, while inland waters activity decreased by 1 to 23 units.

Natural Gas Rig Count: Natural gas rig count decreased for the second time in as many weeks to 354 (a drop of 12 rigs from the previous week). As per the most recent report, the number of natural gas-directed rigs is at their lowest level since Jun 16, 1995 and is down 56% from its 2012 peak of 811.

The current natural gas rig count remains 78% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 606 active natural gas rigs.

Oil Rig Count: The oil rig count – that rocketed to a 25-year high of 1,432 in Aug last year – jumped by 22 to 1,403. The current tally is well above the previous year's rig count of 1,355. It has recovered strongly from a low of 179 in Jun 2009, rising 7.8 times.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 7 remained unchanged from the previous week.

Rig Count by Type: The number of vertical drilling rigs rose by 4 to 475, while the horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) was up by 6 to 1,289. In particular, horizontal rig units – that reached an all-time high of 1,193 in May 2012 – rose by 8 from the last week's level to 1,092.

Zacks Rank: As of now, Transocean, Diamond Offshore and Ensco are all Zacks Rank #3 (Hold) stocks, implying that these are expected to perform in line with the broader U.S. equity market over the next one to three months.

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