Transocean Surging Forward

We are maintaining our Buy recommendation on Transocean, Inc. (RIG) shares given its strong leverage to the continued favorable deepwater drilling outlook. The company's bellwether status received a boost from its merger with GlobalSantaFe that has transformed it into an offshore drilling powerhouse.

With a backlog of over $34 billion, the new Transocean offers an unparallel level of earnings and cash flow visibility. Both these factors helped the company to report blow-out first-quarter results. Transocean's profits more than doubled, while revenue shot up 134% to $3.1 billion.

In the first quarter of 2008, Transocean's overall average dayrates reached a record high of $229,000, up more than 2% sequentially. Prospects for the company's high-spec and other floaters are particularly attractive over the coming years, as evident from its current backlog of over $34 billion. As a result, Transocean's high-spec floater fleet is fully committed in 2008 and only 3 rigs remaining in the company's mid-water floaters have any available uncommitted time in 2008.

Our unchanged price target of $165 reflects 2009 PE and EV/EBITDA multiples of 10.0x and 8.0, respectively. The premium to the peer group is in line with the way the stock has historically traded, given its leadership position in the offshore market.

High Premium on FactSet Research

FactSet Research Systems Inc. (FDS) continues to demonstrate healthy growth as it expands internationally and enhances its offerings through strategic acquisitions. The company's flagship offering, Portfolio Manager Workstation (PMW) is a staple among asset managers and the addition of Thomson's (TRI) WorldScope database will grow its addressable market within its customer base.

However, increased competition from companies like S&P pose a growing risk given that asset managers may seek to cut costs. Moreover, given large losses at major financial institutions, we are concerned that these institutions will slow spending on analytical tools. We reiterate our Hold recommendation on the shares.

Shares of FactSet are currently trading at a P/E multiple of 26.7x our fiscal 2008 EPS estimate of $2.49. Given the company's industry-leading position, above-average return metrics and profitability, strong cash flow, and solid fundamentals, we believe the stock deserves to trade at a premium.