Ensco plc Annual Valuation – 2014 $ESV

ENSCO_LogoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Ensco (ESV) fares in the ModernGraham valuation model.

Company 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, 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. In February 2014, Ensco PLC sold its two remaining cold-stacked jackup rigs.
ESV Chart

ESV data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  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 – FAIL
  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

Key Data:

MG Value $27.20
MG Opinion Overvalued
Value Based on 3% Growth $72.65
Value Based on 0% Growth $42.59
Market Implied Growth Rate 1.11%
Net Current Asset Value (NCAV) -$21.90
PEmg 10.72
Current Ratio 1.55
PB Ratio 0.97

Balance Sheet – 3/31/2014

Current Assets $1,472,400,000
Current Liabilities $952,900,000
Total Debt $4,703,700,000
Total Assets $19,521,200,000
Intangible Assets $3,274,000,000
Total Liabilities $6,599,600,000
Outstanding Shares 234,100,000

Earnings Per Share

2014 (estimate) $5.03
2013 $6.09
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

Earnings Per Share – ModernGraham

2014 (estimate) $5.01
2013 $4.91
2012 $4.60
2011 $4.67
2010 $5.58
2009 $6.13

Dividend History

ESV Dividend Chart

ESV Dividend data by YCharts


Ensco no longer qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio and the lack of sufficient earnings growth over the last ten years while the company fails the Enterprising Investor’s requirements by having too much debt relative to the net current assets and by having insufficient earnings growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears overvalued after seeing a drop in EPSmg (normalized earnings) from $5.58 in 2010 to an estimated $5.01 for 2014.  This demonstrated drop in earnings certainly does not support the market’s implied estimate of 1.11% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out the previous ModernGraham valuations of Ensco (ESV) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Ensco (ESV)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Ensco (ESV) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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