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Is it Worth Holding Ensco plc (ESV) in Your Portfolio?


We issued an updated research report on offshore contract driller Ensco plc ESV on May 18, 2017. The company’s drilling fleet comprises the largest number of premium jackups. Despite this positive Ensco’s dividend history is not lucrative.

The company currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.

With less oil being discovered on land and companies having to dig deeper to get to the reserves, Ensco is poised to benefit from a market with robust multi-year demand trends, given its technologically advanced and versatile drilling fleet.

Ensco has a contracted revenue backlog (excluding bonus opportunities) of $3.3 billion. This provides the company an excellent cash flow visibility. Also, the company has no significant debt maturities up to second-quarter 2019. Presently, Ensco’s debt-to-capital ratio is 26%, which represents its healthy financial picture.

For first-quarter 2017, the company incurred narrower-than-expected loss due to significantly lower operating expenses.

However, the bottom line compared unfavorably with the year-ago quarter profit. The year-over-year underperformance was owing to lower average dayrate and rig utilization.

Additionally, the offshore driller’s pricing chart shows significant weaknesses. The company’s shares lost almost 24% over the last one year, underperforming 9.9% decline for the Zacks categorized Oil & Gas-Drilling industry.

Also, the current dividend yield for the company is 0.54%, which is much lower than the industry yield of 1.48%.

Stocks to Consider

Some better-ranked players in the energy sector include Canadian Natural Resources Limited CNQ, McDermott International Inc. MDR and W&T Offshore Inc. WTI. Canadian Natural sports a Zacks Rank #1 (Strong Buy), while McDermott and W&T Offshore carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

We expect year-over-year earnings growth for Canadian Natural to be 720% for the current year.

McDermott beat the Zacks Consensus Estimate in each of the trailing four quarters with an average positive surprise of 387.50%.

W&T Offshore had an average positive earnings surprise of 69.21% in the last four quarters.

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