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Analyzing Ensco’s Share Price Movement ahead of 4Q15 Results

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What does Ensco’s share price movement tell us?

Ensco’s (ESV) share price reached its one-year high of ~$31.9 in the second week of February 2015. Then, on February 25, ESV slashed its quarterly dividend to $0.15 per share from $0.75 per share. Ensco’s share price has continued to trend down since, with the company’s financial performance deteriorating until 3Q15. In the past one year, Ensco’s share price has decreased by 72%.

The VanEck Vectors Oil Services ETF (OIH), an ETF tracking index of 25 OFS companies, has declined by 36% during the same period. The US offshore rig count decreased by more than 52% in the past year, affecting the entire OFS (oilfield equipment and services) industry negatively. Precision Drilling Corporation (PDS), Ensco’s OFS peer, has declined by 52% over the past year. Ensco makes up 0.18% of the Energy Select Sector SPDR ETF (XLE).

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Analyzing factors that can affect Ensco’s performance

Meanwhile, Ensco’s Ensco DS-10, an ultra-deepwater drillship, has been delayed and is now scheduled for an early 2017 delivery. The company expects excess rig capacity in the rig market, leading to lower utilization and day rates, causing ESV’s revenue and income to fall. In the 3Q15 conference call, its management estimated the company would reduce its capex by 62% to $625 million in fiscal 2016 in order to re-align costs to lower revenues.

On the other hand, Ensco finalized various contracts including Ensco 71 and Ensco 72 (both jack-up rigs) in recent times. In total, these contracts represent $400 million of additional revenue backlog. These can provide some tailwind to Ensco’s growth. (Read Market Realist’s “Will Lower Capex Plans Hurt Ensco?” to learn about Ensco in depth.)

Ensco’s dividend

In November 2015, Ensco declared a quarterly dividend of $0.15 per share, or $0.60 per share annualized. This was 80% lower than a year-ago. Ensco’s dividend yield, calculated as annualized dividend divided by its share price, translates to 7.2%.

Now let’s discuss Wall Street analysts’ targets for Ensco.

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