Ensco: Rock-Solid in Deepwater

05/16/2014 8:00 am EST

Focus: STOCKS

Jack Adamo

Editor, Jack Adamo's Insiders Plus

Our latest featured buy is a company providing offshore contract drilling services to the oil and gas industry; it has a major presence in the most strategic offshore basins across six continents, notes Jack Adamo, editor of Insiders Plus.

Ensco PLC (ESV) boasts one of the newest ultra-deepwater rig fleets and has the largest premium jackup fleet (shallow water, like the Gulf of Mexico).

In fact, it has the second youngest fleet in the business. And, with six new ships coming online in the next few years, it will probably be number one.

This is an important factor because the new rigs are more efficient and safer—a big issue since the Macondo disaster in the Gulf of Mexico a few years back.

The firm is ranked first in total customer satisfaction with top honors in eight of fourteen categories in the latest annual survey by EnergyPoint Research.

Ensco's management is smart and, when it comes to financial metrics, Ensco is a gem. The company's accounting is very clean and management's discussions are straightforward.

The balance sheet is rock solid with debt representing only 27% of capitalization. That's the lowest of the six major drillers. Despite having an industry-leading dividend of 6%, the company has a conservative payout ratio of just 49%.

I like this company a lot. Ensco is very well positioned for the rest of 2014 due to its $10 billion order backlog. The stock sells for just 8-times trailing net earnings.

Earnings growth this year is expected to be flat or low single digits, but with a 6% yield, a great balance sheet, and conservative payout ratio, I think the stock will attract attention before the industry upswing becomes evident.

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