Ensco: Undervalued Driller Well-Positioned for Upturn

A New York presenter likes Ensco (NYSE: ESV, $47.75) at this level. The company is the lowest-cost producer of deepwater rigs in the space. This business is expected to contribute 50% of the total revenue in 2-3 years, once all 8 of ESV's units become operational. The jackup segment has been hit by declining day rates, but the rate of decrease is slowing down and management projects stabilization in the second half of 2010. Long-term dynamics remain very favorable for the offshore drilling industry. Ensco has $1.2 billion in cash on the balance sheet and the lowest leverage ratio among its peers. The company has just raised its dividend from $0.10 to $1.40. $560 million remains available for buybacks under the current authorization. ESV has moved HQ's to the UK and will have a significantly lower tax rate going forward. The presenter's target is $60, but if jackup rates start increasing, the upside could be more significant. A takeover is not out of the question.