Here's Why RigNet Inc's Stock Rallied in September

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What happened

Shares of RigNet (NASDAQ: RNET) rebounded in September by rising 6.5% for the month, though even with that rally, it's still down nearly 25% for the year. However, its outlook brightened thanks to a rebound in oil prices, and renewed bullishness in the offshore drilling sector, which sent those stocks soaring last month.

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So what

Crude prices surged in September, led by the global benchmark, Brent, which was up 8.8% for the month and closed at $57.54 per barrel. That price point is getting closer to the level that would incentivize oil producers to start adding more rigs. That increase in activities would benefit RigNet since it provides remote communication services to the sector, so more rigs working means more work for RigNet.

That's exactly what analysts at UBS see on the horizon, which led the bank to upgrade several offshore drilling stocks to buy, including Noble Corporation (NYSE: NE). The bank believes that vessel utilization will increase slightly next year before experiencing a more meaningful rebound in 2019 and 2020, which should drive earnings higher sectorwide. Because of this anticipated market improvement, Noble Corporation chose to warm stack a rig that recently went off contract as opposed to cold stacking it. That means Noble plans to maintain the rig as though it was on contract because it believes a new one is forthcoming. The renewed confidence by contract drillers is good news for RigNet because it suggests that the company will have more sites generating revenue next year.

Now what

Despite last month's uptick, RigNet's stock is still down sharply over the past few years. Because of that, it could have significant upside as the offshore drilling market recovers, which is looking increasingly likely to begin happening in 2018. Though, investors will need an iron stomach given the likelihood that the recovery could still be quite turbulent.

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Matthew DiLallo owns shares of RigNet. The Motley Fool recommends RigNet. The Motley Fool has a disclosure policy.