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Ensco PLC (ESV) Quarterly Valuation

moneyCompany Profile (obtained from Google Finance): Ensco plc (Ensco) is a provider of offshore contract drilling services to the international oil and gas industry. As of December 31, 2011, the Company owned and operated an offshore drilling rig fleet of 77 rigs, including rigs under construction. As of December 31, 2011, its rig fleet included seven drillships, 13 dynamically positioned semisubmersible rigs, seven moored semisubmersible rigs, 49 jackup rigs and one barge rig. Its customers include national and international oil companies. On May 31, 2011, the Company completed a merger transaction (the Merger) with Pride International, Inc., (Pride), ENSCO International Incorporated, an indirect, wholly owned subsidiary and predecessor of Ensco plc (Ensco Delaware), and ENSCO Ventures LLC, an indirect, wholly owned subsidiary of Ensco plc (Merger Sub). Pursuant to the Agreement and Plan of Merger, Merger Sub merged with and into Pride, with Pride as the surviving entity and an indirect, wholly owned subsidiary of Ensco plc.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $12.15
MG Opinion Overvalued
Value Based on 3% Growth $71.01
Value Based on 0% Growth $41.63
Market Implied Growth Rate 1.36%
Net Current Asset Value (NCAV) -$21.51
PEmg 11.23
Current Ratio 1.61
PB Ratio 1.02

Balance Sheet – 9/30/2013 

Current Assets $1,517,100,000
Current Liabilities $940,500,000
Total Debt $4,743,600,000
Total Assets $19,142,000,000
Intangible Assets $3,366,600,000
Total Liabilities $6,549,800,000
Outstanding Shares 234,000,000

Earnings Per Share

2013 (estimate) $6.05
2012 $5.23
2011 $3.08
2010 $3.80
2009 $5.45
2008 $8.17
2007 $6.73
2006 $4.96
2005 $1.86
2004 $0.69
2003 $0.71

Earnings Per Share – ModernGraham 

2013 (estimate) $4.90
2012 $4.60
2011 $4.67
2010 $5.58
2009 $6.13
2008 $5.80

Conclusion:

Ensco is an intriguing company for Defensive Investors and Enterprising Investors, and should be kept on their watch lists.  The Defensive Investor’s only gripe with the company is that the current ratio is a little lower than what he would like to see, and the company qualifies for the Enterprising Investor because it also qualifies for the Defensive Investor.  These value investors seeking to utilize Benjamin Graham’s methods should keep an eye on Ensco while researching other companies that pass the ModernGraham requirements.  From a valuation perspective, the company doesn’t appear like a great value opportunity at the current time.  EPSmg (normalized earnings) have dropped from $6.13 in 2009 to an estimated $4.90 for 2013.  Meanwhile, the market is implying a growth rate of 1.36%, but since the historical performance has shown a drop in earnings, the market’s estimate is not supported by the historical data.  Until the growth in earnings improves, this company may be overvalued.

What do you think?  What value would you put on Ensco PLC (ESV)?  Is the company suitable for Defensive Investors and Enterprising Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Ensco PLC (ESV) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill

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