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Ensco (ESV) Likely to Beat on Earnings in Q3: Stock to Gain?

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Ensco plc , a leading supplier of offshore contract drilling services to the oil and gas industry, is expected to report third-quarter 2016 earnings on Oct 27.

In the last quarter, the company’s earnings of 51 cents per share surpassed the Zacks Consensus Estimate of 50 cents. The figure, however, decreased from $1.18 per share earned in the year-earlier quarter. Let’s see how things are shaping up prior to the announcement.

ENSCO PLC Price and EPS Surprise

 

ENSCO PLC Price and EPS Surprise | ENSCO PLC Quote

Earnings Whispers

Our proven model shows that Ensco is likely to beat earnings because it has the right combination of two key ingredients.  

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +7.69%. This is because the Most Accurate estimate stands at 14 cents, while the Zacks Consensus Estimate is pegged at 13 cents. This is very meaningful and a leading indicator of a likely positive earnings surprise.

Zacks Rank: Ensco carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Hold) or 3 have a significantly higher chance of beating earnings. The combination of Ensco’s favorable Zacks Rank and a positive ESP makes us confident about an earnings beat.

Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.

Currently, the stock is trading at $8.90. We expect the release to lead to stock movement.

Factors Likely to Influence this Quarter

With less oil being discovered on land and companies having to dig even deeper for reserves, Ensco is poised to benefit from a market with robust multi-year demand trends, given its technologically advanced and versatile drilling fleet. We expect this factor to have a positive impact on the upcoming earnings as well.

Ensco’s impressive balance sheet and sufficient liquidity should help it address operational or corporate needs. At the end of the second quarter, Ensco had over $790 million in cash and cash equivalents, while long-term debt-to-capitalization ratio was a very manageable 38.3%.
 
However, the persistent crude price weakness has compelled top energy companies to resort to spending cuts (particularly on the costly upstream projects) due to lower profit margins. This, in turn, means less work for drilling contractors like Ensco. This is likely to result in the company witnessing increased downtime in 2016.

Stocks to Consider

Here are some companies from the same space which, according to our model, have the right combination of elements to post an earnings beat this quarter:

Baker Hughes Inc. has an Earnings ESP of +4.65% and a Zacks Rank #2. The company is expected to release third-quarter earnings results on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

Spectra Energy Corp. (SE - Free Report) has an Earnings ESP of +12.50% and a Zacks Rank #3. The company is expected to release third-quarter earnings results on Nov 2.

Enterprise Products Partners LP (EPD - Free Report) has an Earnings ESP of +3.33% and a Zacks Rank #3. The company is expected to release third-quarter earnings results on Oct 27.

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