Why RigNet Inc.'s Stock Continued Rallying on Friday
Shares of RigNet Inc. (NASDAQ: RNET) rallied 10.5% last Friday. On the surface, it was a curious move for the oil-field services company since there didn't seem to be any needle-moving catalysts and oil prices had barely budged. However, after drilling down a bit deeper, that rally makes more sense.
While RigNet didn't have any news-driven catalysts on Friday, the company announced on Wednesday that it secured a global master services agreement with McDermott International (NYSE: MDR). Under the terms of the agreement, RigNet will provide McDermott with managed communication services and multiple other solutions to ensure its fleet of vessels has the most advanced communication systems available. "This win marks a significant victory for RigNet within the maritime sector and is a part of our strategic growth strategy to provide high-value solutions in verticals beyond oil and gas," according to CEO Steven Pickett.
Shares of RigNet are up more than 18% since the announcement. However, the company's stock price had been in rally mode well before that news, rocketing 75% since the end of July. While some notable improvements in its second-quarter results likely helped ignite this rally, the company is also benefiting from the belief that the long-awaited offshore drilling recovery is beginning to unfold. The most recent comments supporting that view came from Transocean's (NYSE: RIG) CEO Jeremy Thigpen. He stated last week that he expects lease rates on rigs to improve, and that contracting activity should pick up in late 2019. Based on that outlook, he said that "we are far more bullish than we have been historically," which is one reason Transocean recently made another major acquisition.
RigNet continues to benefit from the growing optimism that the offshore drilling market will experience a meaningful improvement over the next year, which should boost its financial results. Add that to its recent contract win with McDermott to diversify away from the offshore drilling market, and the company's future looks much brighter than its recent past.
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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends RigNet. The Motley Fool has a disclosure policy.