Oil & Gas Stocks

Ensco plc Analysis – 2015 Update $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 Most Undervalued Companies for the Defensive Investor – July 2015.  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 stock analysis showing a specific look at how Ensco PLC (ESV) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Ensco plc (Ensco) is a global offshore contract drilling company. The Company provides offshore contract drilling services to the international oil and gas industry. The Company operates in three segments: Floaters, which includes its drill ships and semisubmersible rigs; Jackups and Other, which consists of management services on rigs owned by third-parties. Its Floaters and Jackups segments provide contract drilling. It owns and operates an offshore drilling rig fleet of around 70 rigs, including seven rigs under construction, with drilling operations in markets around the globe. Its rig fleet includes around 10 drill ships, 13 semisubmersible rigs, five moored semisubmersible rigs and 42 jackup rigs. Of its 70 rigs, around 17 are located in North and South America, 17 are located in the Middle East and Africa, 17 are located in the Asia Pacific rim (including five rigs under construction), 15 are located in Europe and the Mediterranean and fits are located in Brazil.

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Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  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 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  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 - FAIL
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

MG Value $0.00
MG Opinion Overvalued
Net Current Asset Value (NCAV) -$20.65
Current Ratio 2.69
PB Ratio 0.51

Balance Sheet – March 2015

Current Assets $3,054,000,000
Current Liabilities $1,134,000,000
Total Debt $5,919,000,000
Total Assets $16,346,000,000
Intangible Assets $317,000,000
Total Liabilities $7,842,000,000
Outstanding Shares 231,900,000

Earnings Per Share

2015 (estimate) $3.11
2014 -$16.88
2013 $6.07
2012 $5.04
2011 $3.08
2010 $4.06
2009 $5.48
2008 $8.02
2007 $6.73
2006 $5.04
2005 $1.87

Earnings Per Share – ModernGraham

2015 (estimate) -$1.37
2014 -$2.32
2013 $4.89
2012 $4.58
2011 $4.72
2010 $5.65

Dividend History

Free Cash Flow

Conclusion:

Ensco PLC does not qualify for either the Defensive Investor and the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios, as well as the insufficient earnings stability or growth over the last ten years.  The Enterprising Investor is concerned with the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a speculative attitude.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from a gain of $4.72 in 2011 to an estimated loss of $1.37 for 2015.  This lack of earnings growth and current negative EPSmg leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value falling below the price.

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 PLC (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 any 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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