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Is Ensco Heading To New Lows?

Mar. 01, 2018 5:54 PM ETValaris Limited (VAL)163 Comments
Vladimir Zernov profile picture
Vladimir Zernov


  • Ensco's Q4 results are somewhat disappointing.
  • Moreover, earnings call comments are surprisingly cautious.
  • While the company's shares have already been punished severely for the acquisition of Atwood, a further decline in oil prices might lead to new lows.

Earlier in February, I wrote an article about my expectations for at least a technical rebound in offshore drilling stocks. I was generally positive on major offshore drillers, but was cautious on Ensco (ESV). Here's what I wrote at that time:

Ensco's shares are once again paying the price for the acquisition of Atwood Oceanics, an aggressive bet that always puts pressure on the stock during the downside. As a result, Ensco's shares are not that far from lows once again. It will be very interesting to hear what Ensco's management team has to say when the company reports its quarterly results on Feb. 27. So far, the market is clearly unimpressed.

Now that Ensco has published its fourth-quarter results and has held its earnings call, it's high time to look at the company again, especially in the light of the recent trading action:

Let's quickly get through the headline numbers. In the fourth quarter, the company had an adjusted loss of $0.23 per share on revenue of $454.2 million. This had to be expected: Better-era contracts run out and they are replaced by new contracts, which are in many cases near cash breakeven. The GAAP loss was even bigger at $0.49 per share, influenced by a $183-million impairment.

As per the company's comments, the impairment charge primarily relates to changes in useful life assumptions for two non-core floaters. This announcement is a stark reminder to anyone willing to use "discount to book" as an argument for or against investment in an offshore drilling company today. Book value means nothing today unless it comes from fresh-start accounting, like in Ocean Rig's (ORIG) case.

Ensco finished 2017 with $885.4 million in cash and short-term investments on the balance sheet. This is a great decrease from $2.6 billion in cash that it had at the

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This article was written by

Vladimir Zernov profile picture
I'm a trader who trades both short-term and long-term. I started my career as a day-trader for a trading firm, but then turned to longer time frames and went on my own to manage my portfolio. I use technical analysis as well as fundamental analysis in my research.

Analyst’s Disclosure: I am/we are long RIG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I may trade any of the above-mentioned stocks.

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