Analyzing Ensco’s Free Cash Flow


Jan. 6 2016, Updated 4:05 p.m. ET

Ensco’s operating cash flows and capex

In this article, we will analyze how Ensco’s (ESV) operating cash flows trended over the past few quarters. We will also discuss how its free cash flows (or FCF) were affected given its capital expenditures (capex).

Ensco’s cash from operating activities (or CFO) deteriorated in fiscal 3Q15 over fiscal 3Q14. During this period, the company’s operating cash flow decreased 43% to $341 million.

As crude oil’s price fell and upstream companies’ exploration and production budgets were slashed, ESV’s revenues declined, reducing its CFO.

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Ensco’s free cash flow and capex

Ensco’s (ESV) FCF was volatile in the past 11 quarters until fiscal 3Q15. In fiscal 3Q15, FCF turned to -$191 million compared to -$13 million a year earlier. ESV’s capital expenditure (or capex) decreased 13.5% from fiscal 3Q14 to fiscal 3Q15. In fiscal 3Q15, Ensco delayed the delivery of ENSCO DS-10, its only remaining floater under construction, until fiscal 1Q17. Although ESV’s capex decreased in the past year, a steeper CFO fall led to the FCF deterioration.

In comparison, RPC, Inc.’s (RES) FCF turned positive in fiscal 3Q15 from a negative FCF in fiscal 3Q14. RES is ESV’s smaller peer, generating $26 million FCF in fiscal 3Q15. ESV comprises 0.02% of the iShares Core S&P 500 ETF (IVV). IVV is made up of stocks of large-capitalization US companies, and has 6.4% energy sector exposure.

Next, we will discuss ESV’s historical valuation multiples.


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