We maintained our Neutral recommendation on
) on Dec 26, 2013. Ensco's impressive balance sheet and
sufficient liquidity help it to address any operational or
corporate need. However, Ensco's business depends on oil and gas
exploration and production activity, volatility in which could
put pressure on E&P spending and create lower demand for its
service offerings. Rowan carries a Zacks Rank #3 (Hold).
Having transformed from a Gulf of Mexico company to a relatively
pure international play, Ensco should be well positioned to
improve its earnings and revenues in the foreseeable future, as
well as benefit from a recovery in oil-directed drilling.
The international deepwater markets are looking strong with new
multi-year projects in West Africa, Brazil, Southeast Asia and
the Mediterranean. Again, Ensco's two uncontracted newbuild HDHE
(heavy duty, harsh environment) jackups are well positioned for
the rapidly improving Central North Sea, the Middle East, and
South East Asian markets. These efforts should eventually be
accretive to the company's earnings.
The last few years saw an upgrade of several Ensco rigs. The
upgrade project of ENSCO DS-1 is complete while ENSCO 5005, ENSCO
5006, ENSCO DS-2, ENSCO 6001 and ENSCO 6002, are undergoing
modernization. Almost 55% of the jackups completed upgrades in
2012-2013 and in 2014-2015 fewer jackup upgrades are expected.
This is a positive for the company as it will improve utilization
and boost operating margins.
Ensco has $11 billion of contracted revenue backlog (excluding
bonus opportunities), providing it with an excellent cash flow
visibility. With the completion of the construction phase of its
8 additional rigs − scheduled to be delivered by the end of 2015
− Ensco is expected to achieve significant growth.
However, the deepwater rigs are expected to have increased
downtime in 2014 that will affect its revenues. Further, the
challenges arising in contracting rigs for extensions in Brazil
Stocks That Warrant a Look
While we expect Ensco to perform in line with its peers, one can
consider Zacks Ranked #1 (Strong Buy) stocks
Harvest Natural Resources Inc.
Blueknight Energy Partners, L.P
) as good buying opportunities for the short term.
BLUEKNIGHT EGY (BKEP): Free Stock Analysis
ENSCO PLC (ESV): Free Stock Analysis Report
HARVEST NATURAL (HNR): Free Stock Analysis
TESCO CORP (TESO): Free Stock Analysis Report
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