Search Results for: NSC

Benjamin 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 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  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 is an offshore contract drilling company. The Company provides offshore contract drilling services to the international oil and gas industry. The Company’s segments include Floaters, Jackups and Other. Its Floaters segment includes the Company’s drillships and semisubmersible rigs, and provides contract drilling. The Jackups segments provide contract drilling. The Other segment consists of management services on rigs owned by third parties. It owns and operates an offshore drilling rig fleet of over 60 rigs, including approximately four rigs under construction. Its rig fleet includes approximately 10 drill ships, over 10 semisubmersible rigs, approximately three moored semisubmersible rigs and over 40 jackup rigs. Of its approximately 70 rigs, approximately 30 are located in the Middle East, Africa and Asia Pacific, over 20 are located in North and South America (including Brazil), and approximately 20 are located in Europe and the Mediterranean.

ESV data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ESV – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
	1. Adequate Size of the Enterprise	Market Cap > $2Bil	$2,338,606,852	Pass
	2. Sufficiently Strong Financial Condition	Current Ratio > 2	4.18	Pass
	3. Earnings Stability	Positive EPS for 10 years prior		Fail
	4. Dividend Record	Dividend Payments for 10 years prior		Pass
	5. Earnings Growth	Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end	-204.84%	Fail
	6. Moderate PEmg Ratio	PEmg < 20	-2.43	Fail
	7. Moderate Price to Assets	PB Ratio < 2.5 OR PB*PEmg < 50	0.28	Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
	1. Sufficiently Strong Financial Condition	Current Ratio > 1.5	4.18	Pass
	2. Sufficiently Strong Financial Condition	Debt to NCA < 1.1	2.52	Fail
	3. Earnings Stability	Positive EPS for 5 years prior		Fail
	4. Dividend Record	Currently Pays Dividend		Pass
	5. Earnings Growth	EPSmg greater than 5 years ago		Fail

Stage 2: Determination of Intrinsic Value

EPSmg	-$3.22
MG Growth Estimate	-4.25%
MG Value	$0.00
Opinion	Overvalued
MG Grade	C
MG Value based on 3% Growth	-$46.62
MG Value based on 0% Growth	-$27.33
Market Implied Growth Rate	-5.46%
Current Price	$7.80
% of Intrinsic Value	N/A

ENSCO PLC does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding 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 should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.58 in 2012 to an estimated $-3.22 for 2016. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into ENSCO PLC revealed the company was trading below its Graham Number of $38.7. The company pays a dividend of $0.32 per share, for a yield of 4.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was -2.43, which was below the industry average of 55.24, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.7.

ENSCO PLC receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV)	-$11.70
Graham Number	$38.70
PEmg	-2.43
Current Ratio	4.18
PB Ratio	0.28
Current Dividend	$0.32
Dividend Yield	4.10%
Number of Consecutive Years of Dividend Growth	0

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Useful Links:

ModernGraham tagged articles	Morningstar
Google Finance	MSN Money
Yahoo Finance	Seeking Alpha
GuruFocus	SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information	6/1/2016
Total Current Assets	$2,554,700,000
Total Current Liabilities	$610,800,000
Long-Term Debt	$4,905,600,000
Total Assets	$13,765,000,000
Intangible Assets	$0
Total Liabilities	$5,885,100,000
Shares Outstanding (Diluted Average)	284,600,000

Earnings Per Share History

Next Fiscal Year Estimate	$2.55
Dec2015	-$6.88
Dec2014	-$16.88
Dec2013	$6.07
Dec2012	$5.04
Dec2011	$3.08
Dec2010	$4.06
Dec2009	$5.48
Dec2008	$8.02
Dec2007	$6.73
Dec2006	$5.04
Dec2005	$1.87
Dec2004	$0.62
Dec2003	$0.66
Dec2002	$0.33
Dec2001	$1.50
Dec2000	$0.61
Dec1999	$0.00
Dec1998	$1.81
Dec1997	$1.63
Dec1996	$0.72

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate	-$3.22
Dec2015	-$4.70
Dec2014	-$2.32
Dec2013	$4.89
Dec2012	$4.58
Dec2011	$4.72
Dec2010	$5.65
Dec2009	$6.11
Dec2008	$5.77
Dec2007	$4.09
Dec2006	$2.41
Dec2005	$1.06
Dec2004	$0.69
Dec2003	$0.69
Dec2002	$0.75
Dec2001	$1.01
Dec2000	$0.83

Recommended Reading:

Other ModernGraham posts about the company

Ensco plc Analysis – 2015 Update $ESV

19 Companies in the Spotlight This Week – 7/26/14

Ensco plc Annual Valuation – 2014 $ESV

5 Companies to Research with the Lowest PEmg Ratios for Defensive Investors – June 2014

5 Lowest PEmg Companies for the Defensive Investor

Other ModernGraham posts about related companies

Tidewater Inc Valuation – August 2016 $TDW

Occidental Petroleum Corp Valuation – August 2016 $OXY

Valero Energy Corporation – August 2016 $VLO

Chevron Corp Valuation – August 2016 $CVX

Exxon Mobil Corporation Valuation – August 2016 $XOM

National-Oilwell Varco Inc Valuation – August 2016 $NOV

Newfield Exploration Co Valuation – August 2016 $NFX

EOG Resources Inc Valuation – July 2016 $EOG

Noble Corp PLC Valuation – July 2016 $NE

Baker Hughes Inc Valuation – July 2016 $BHI

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.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Benjamin 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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