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 (http://boards.fool.com/im-curious-to-know-how-your-valuation...). Looking with the latest numbers, here's the comparison:

                            RIG      ATW
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.

Cheers,
Jim