Oil and natural gas driller, Ensco plc (ESV) is expected to report fourth-quarter 2014 earnings on Wednesday, Feb 25. Let’s see how things are shaping up prior to the announcement. In the last quarter, the company’s earnings of $1.87 per share increased 12% from $1.66 earned in the year-ago quarter. Significant improvement in average dayrates aided the results, which also surpassed the Zacks Consensus Estimate of $1.62. Factors to Consider This Quarter Ensco plc, a leading supplier of offshore contract drilling services – along with its peers like Hercules Offshore Inc. (HERO) and Transocean Ltd. (RIG) – has witnessed idled rigs, shrinking dayrates and lack of new contracts in the fourth quarter. Ensco’s most pressing concern, at least in the short term, is the oversupply in the rig market. With large, multinational energy firms looking to rein in their skyrocketing capital expenses, the offshore drilling space is likely to see intense competition, as multiple firms chase a single contract. This excess capacity, in turn, has led to lower utilization or dayrates. Although Ensco has substantial contract revenue backlog, we believe that increased downtime in the fourth quarter that will affect its revenues. Overall activities of Ensco during the fourth quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for 2014 declined to $5.78 from $5.81 per share over the last 30 days. Earnings Whispers? Our proven model does not conclusively show that Ensco is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below. Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -4.35%. This is because the Most Accurate estimate stands at $1.32 and the Zacks Consensus Estimate is pegged higher at $1.38. Zacks Rank: Ensco carries a Zacks Rank #4 (Sell). Not only do we caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, the company’s ESP of -4.35% also makes us doubtful of an earnings beat. Stock to Consider An energy firm with the right combination of elements to post an earnings beat this quarter is: Global Partners LP (GLP) with Earnings ESP of +75.0% and a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ENSCO PLC (ESV): Free Stock Analysis Report TRANSOCEAN LTD (RIG): Free Stock Analysis Report HERCULES OFFSHR (HERO): Free Stock Analysis Report GLOBAL PARTNERS (GLP): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research
|