Can Dividend Commitment Revive Ensco Rowan (ESV) Stock?

Ensco Rowan plc ESV has witnessed its price plunged to a level never seen in more than two decades. Notably, in the past year, the stock has slumped 71.5%, significantly underperforming the Zacks Oil-Energy sector’s 17.2% decline.

Overall, with 20% decline in price of black gold from the most recent peak, thereby taking oil in the bear territory, the energy stocks are witnessing drop in prices, and the offshore driller is not an exception.

Although, in broader sense, it looks quite natural that energy stocks have declined owing to bearish crude, but a closer look reveals that the price of Ensco Rowan have significantly underperformed the composite performance of the stocks belonging to the Zacks Oil-Energy sector. Even the merger of Ensco and Rowan that completed last April could not save the stock from declining to this record low level. Notably, the company expected that it will achieve 75% of cost synergies within a year since the consummation of the merger.

Eventually, Luminus Management, with ownership interest of 4.5% in the combined firm, has proposed to the board of directors of Ensco Rowan to payout a special dividend of $2.5 billion and urged to finance the payout with guaranteed bond offering. Luminus believes that the stock will gain momentum once the company shows commitment in returning capital back to the shareholders through dividend payment, following its recent decision to stop paying regular quarterly cash dividend.

However, surprisingly, Luminus’ proposal that was announced before the market opening on Jun 12 was not reflected in Ensco Rowan’s stock price movement and it slipped nearly 6% on the same day.    

Headquartered in London, the United Kingdom, Ensco Rowan currently carries a Zacks Rank #3 (Hold). Meanwhile better-ranked players in the energy sector includes Apache Corporation APA, Ecopetrol S.A. EC and Anadarko Petroleum Corporation APC. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.        

Apache has average positive earnings surprise of 6.6% for the last four quarters.

Ecopetrol is likely to witness earnings growth of 25.3% through 2019.

Anadarko Petroleum has average positive earnings surprise of 6.6% for the last four quarters.

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