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On Mar 24, 2014, we issued an updated research report on Ensco plc (ESV - Analyst Report). The company remains well positioned to reap benefits from the recent strength in the offshore markets, thanks to its high quality fleet, manageable newbuild program and impressive execution.

Ensco’s exposure to the fastest growing markets of the world, including Southeast Asia and West Africa, is an added incentive. We also appreciate the company’s financial discipline and organically developed asset base, which are expected to drive earnings over the long term.

This Zacks Rank #3 (Hold) company delivered positive earnings surprise in three of the last four quarters, with an average beat of 2.02%.

Ensco’s earnings and revenues grew year over year. The company attributed the deployment of new rigs over the past year that increased utilization and average dayrate to earnings growth. Moreover, addition of ENSCO 8506, ENSCO DS-6 and ENSCO DS-7 to its fleet contributed to the growth.

Having transformed from a Gulf of Mexico (GoM) company to a relatively pure international play, Ensco should be well positioned to improve its earnings and revenues in the foreseeable future, as well as benefit from a recovery in oil-directed drilling. Again, Ensco’s two uncontracted newbuild HDHE (heavy duty, harsh environment) jackups are well positioned for the rapidly improving Central North Sea, the Middle East, and South East Asian markets. These efforts should eventually be accretive to the company’s earnings.

Ensco will continue to see tighter jackup markets around the world throughout 2014. The rig market is experiencing a series of attractive awards and has possibly a stronger outlook than even the floater market. Almost every region is anticipated to have weak rig availability next year. Ensco has $11 billion of contracted revenue backlog (excluding bonus opportunities), providing it with an excellent cash flow visibility.

On the flip side, the company is expected to have increased downtime in 2014, mainly on account of the jackup fleet with 95 days, while floaters are estimated to have a downtime of 31 days. This would affect its revenues. Further, the challenges arising in contracting rigs for extensions in Brazil are also concerns.

Stocks That Warrant a Look

Better-ranked stocks in the oil and gas industry include Valero Energy Corporation (VLO - Analyst Report), Unit Corporation (UNT - Snapshot Report) and Helmerich & Payne, Inc. (HP - Analyst Report). All three stocks sport a Zacks Rank #1 (Strong Buy).
 

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