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OneBeacon Insurance Group, Ltd. Message Board

tonygin 3 posts  |  Last Activity: Nov 11, 2014 2:54 PM Member since: Dec 24, 2003
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  • tonygin by tonygin Nov 11, 2014 2:54 PM Flag

    •Ensco (NYSE:ESV) declares $0.75/share quarterly dividend, in line with previous.
    •Forward yield 7.57%
    •Payable Dec. 4;

  • Transocean: World's No. 1 Deep-Underwater Oil Driller Is An Even Deeper Value

    Nov. 2, 2014 5:34 AM ET | 31 comments | About: Transocean Ltd. (RIG), Includes: RIGP

    Disclosure: The author is long RIG. (More...)


    Summary
    •Transocean stock is trading at a 10-year low of around $30 but its rig fleet is worth $44 a share.
    •Transocean stands to benefit from an increase in deep-water oil drilling in the coming years.
    •Contrarian investment opportunities arise when the improvements lie far out in the distance, not when they’re underway.

    Transocean (NYSE:RIG) -- with the world's largest mobile offshore drilling fleet -- leads the industry globally in providing contract drilling for oil and gas producers. The stock is trading at a deeper discount than its underwater oil rigs. At around $30 a share, they're trading at their lowest level in more than 10 years and below book value.

    This article was sent to 14,862 people who get email alerts on RIG.

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    Transocean: World's No. 1 Deep-Underwater Oil Driller Is An Even Deeper Value

    Nov. 2, 2014 5:34 AM ET | 31 comments | About: Transocean Ltd. (RIG), Includes: RIGP

    Disclosure: The author is long RIG. (More...)


    Summary
    •Transocean stock is trading at a 10-year low of around $30 but its rig fleet is worth $44 a share.
    •Transocean stands to benefit from an increase in deep-water oil drilling in the coming years.
    •Contrarian investment opportunities arise when the improvements lie far out in the distance, not when they’re underway.

    Transocean (NYSE:RIG) -- with the world's largest mobile offshore drilling fleet -- leads the industry globally in providing contract drilling for oil and gas producers. The stock is trading at a deeper discount than its underwater oil rigs. At around $30 a share, they're trading at their lowest level in more than 10 years and below book value.

    This article was sent to 14,862 people who get email alerts on RIG.

    Get email alerts on RIG »

  • Ensco Is A Strong Buy On Earnings, With 60% Upside Potential Plus A 7.5% Dividend

    Nov. 3, 2014 7:52 AM ET | About: Ensco plc (ESV), Includes: DO

    Disclosure: The author is long ESV. (More...)


    Summary
    •Oil drillers sold off indiscriminately over the past several weeks due to the steep drop in oil prices. This stoked fears of idled rigs and falling earnings.
    •However, this has not materialized. In fact, Diamond Offshore and Ensco both came through with excellent earnings reports and their stocks rose in impressive relief rallies.
    •Ensco remains my top pick in the sector with superb metrics including utilization, and earnings growth. Total return potential is compelling assuming valuation multiple expansion and its high dividend.

    Offshore oil drillers have been badly beaten up for the past several weeks. In light of sharply lower oil prices, analysts were quick to slash their earnings forecasts across the sector, and investors responded by selling the stocks. Indeed, there were compelling arguments on the bear side. As oil prices collapsed, it was theorized that oil and gas companies would cut capital expenditures in light of dwindling investment returns. This, in turn, would cause dayrates and contracting activity for the oil drillers to fall off a cliff.

    This article was sent to 7,146 people who get email alerts on ESV.

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    Fortunately for investors, this has not materialized as expected. Earnings so far this quarter have actually surprised for oil drillers that have reported thus far. First, Diamond Offshore (NYSE:DO) came through with better-than-expected earnings. Then, on October 30, Ensco PLC (NYSE:ESV) came through with a very good earnings report that showed it's still a strong business with solid fundamentals, even in the middle of a difficult operating climate.

    With two strong earnings reports in the books, it's looking increasingly like the oil drilling sector is doing far better than analysts had predicted. And, since the brutal sell-off over the past month left these stocks with very low valuations and sky-high dividends, the sector looks ripe for the picking.

    Earnings are coming in strong

    The quarterly earnings season has been very good so far for the oil drillers. Diamond Offshore posted $52 million in net income and adjusted earnings per share of $0.96, which easily beat expectations which called for $0.78 per share. Revenue rose 4.5%, to $738 million.

    Ensco's results were particularly strong, which is why it's my top pick in the sector and a stock I recently purchased. Quarterly revenue grew 8.5% year over year, thanks largely to a 5% increase in average dayrate. This more than offset a slight dip in utilization, to 88% in the third quarter from 90% in the same quarter last year. Ensco's buoyant dayrates and utilization came as a shock, since analysts widely predicted dayrates and utilization would collapse as oil companies cut back on capital spending on rigs. Earnings per share from continuing operations increased 16% year over year.

    These results certainly do not indicate a deteriorating business; instead, Ensco proved how strong of a company it is during a difficult operating environment for oil drillers. Going forward, Ensco's growth prospects are equally promising because of its recent contracting activity. Ensco contracted five jackups which will add $800 million to its revenue backlog. Separately, Ensco contracted the ENSCO 8503 for a multi-year term which will produce another $300 million in backlog opportunity. This now brings Ensco's total backlog to $11 billion.

    Valuation still far below fair value

    Ensco's stock price rose 3% after reporting earnings. But even at $40 per share, Ensco is still absurdly cheap given the strength of its underlying fundamentals. Ensco trades for 7.5 times forward earnings estimates and 0.8 times book value. Because of Ensco's resilient growth and future growth prospects evident by its recent contracting activity, analysts will almost certainly increase their future earnings estimates. This leaves plenty of room for Ensco's valuation multiples to expand to more appropriate levels.

    The S&P 500 energy sector trades for an average forward EPS multiple of 12. Considering Ensco's earnings growth and future growth prospects, there seems little reason for why the stock can't hold a valuation multiple that is at least on par with its industry group. If Ensco's forward multiple rose to 12, that would imply 60% returns. Total return potential is even more compelling, considering the stock's extremely high dividend yield.

    Ensco is a strong buy on earnings

    I have repeatedly recommended Ensco as a compelling investment, even as oil prices fell. My last write-up of Ensco is here, when I added to my position. Ensco is a superb operator with a very capable management team. The company is executing on new contracts for drilling opportunities across the world. Despite lower oil prices, demand for oil should continue to grow, particularly in the emerging markets which seem to have an insatiable appetite for energy.

    Ensco is an absurdly cheap stock with plenty of avenues for future growth that make its valuation extremely attractive. When adding in the stock's 7.5% dividend yield and its fantastic earnings, Ensco is a screaming buy, and my top pick among the oil drillers.

    Sentiment: Strong Buy

OB
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