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Subject:  Re: RIG vs ATW Date:  12/10/2010  5:43 PM
Author:  TMFGebinr Number:  95 of 1287

ATW appears to have better valuation metrics on P/E, margins, growth etc. Why RIG over ATW?

Hi Anurag,

Good question. The answer basically comes down to what is being expected by the market for each. I looked at the two earlier, right after the initial purchase ( Looking with the latest numbers, here's the comparison:

TTM FCF $2,485 $119 M (TTM to 9/30/10 for both)
# shares 319.0 64.4 M
Share price $71.29 $37.46
Discount rate 15% 15%
Expected growth 1-5 yrs 6.5% 22.7%
Expected growth 6-10 yrs* 3.3% 11.4%
Terminal growth** 0.0% 0.0% (kept the same between the two)
*While 1-5 years is varied by the Excel Solver, 6-10 years is set to half of the 1-5 years value.
**Terminal growth is usually set at 0% or 2.5%.

So, the market is expecting a whole bunch more from Atwood than from Transocean. Granted, it's now expecting more from Transocean than when I first purchased, but it's still a lot less than what it's been able to do in the past -- 6.5% first five years expected CAGR compared to 35.9% over the past five years.

For Atwood, the discrepancy isn't as large -- 22.7% first five years expected CAGR compared to 50.4% over the past five years.

Atwood is certainly a good company, it just doesn't fit with the way I'm picking companies for this portfolio. At least right now.

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