ENSCO International (ESV)

The recent strength in crude oil prices has improved the outlook for a cyclical recovery. Historically, jackup drillers like ENSCO (ESV - Analyst Report) have enjoyed strong early-cycle leverage, a trend that we believe will play out this time as well.

While the near-term situation is expected to remain weak, with rig oversupply and soft demand weighing on dayrates, the medium to long-term outlook remains favorable. ENSCO enjoys strong leverage to this outlook given its fleet of premium jackup rigs, an exceptionally strong balance sheet, and growing deepwater exposure.

Our new $45 price objective, raised from $40 before, results from 2009 P/E and EV/EBITDA multiples of 7.4x and 4.3x, respectively, both well within historical trading ranges.