Explaining Ensco’s Valuation Compared to Its Peers


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

Comparable company analysis

As you can see in the table below, National Oilwell Varco (NOV) is the largest company by enterprise value (or EV) among our set of select oilfield services and equipment (or OFS) companies, followed by Transocean (ESV).

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Ensco (ESV) has a lower EV (approximately the sum of its equity value and net debt) when scaled by trailing 12 months (or TTM) adjusted EBITDA compared to the group average. Core Laboratories (CLB) has the highest TTM EV/EBITDA multiple in our group.

Forward EV/EBITDA is a useful metric to gauge relative valuation. Ensco’s forward EV-to-EBITDA multiple is expected to expand versus its TTM EV/EBITDA. However, the expected expansion of the multiple is lower than the peers’ average. This reflects less extreme fall in ESV’s operating earnings (or EBITDA) in fiscal 4Q15 compared to its peers’ average earnings decrease. ESV makes up only 0.02% of the SPDR S&P 500 ETF (SPY), but for investors that would like energy exposure, energy makes up 6.5% of SPY.

ESV makes up only 0.02% of the SPDR S&P 500 ETF (SPY), but for investors that would like energy exposure, energy makes up 6.5% of SPY.

Debt levels

At 00.72x, ESV’s debt-to-equity multiple is lower than the peer average in the group. Lower debt-to-equity ratios indicate decreased risk associated with the management of debt levels.

Price-to-earnings ratio

Ensco’s valuation, expressed as TTM P/E multiple of 3.2x, is the lowest in our group here. Its forward PE multiple (price-to-earnings ratio) expansion reflects a less extreme earnings decline compared to its peers’ average over the next four quarters, which typically reflects in the current valuation premium. However,

However, sell-side analysts expect ~4% earnings decline for ESV in the next three to five years. Lower long-term earnings growth may reflect in a lower current PE multiple.


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