Will Ensco (ESV) Q3 Earnings Miss on Dayrates Concerns?
Oil and natural gas driller, Ensco plc (ESV) is expected to report third-quarter 2014 earnings on Thursday, Oct 30, before the opening bell. Let’s see how things are shaping up prior to the announcement.
In the last quarter, the company’s earnings of $1.58 per share increased 1.9% from $1.55 per share earned in the year-ago quarter. Significant improvement in average dayrates aided the results. The results also surpassed the Zacks Consensus Estimate of $1.32.
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) – have witnessed idled rigs, shrinking dayrates and lack of new contracts in the third 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 $10 billion in contract revenue backlog (excluding bonus opportunities), we believe that increased downtime in the third quarter that will affect its revenues.
Overall activities of Ensco during the third quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for 2014 declined to $5.80 from $5.85 per share over the last 7 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 0.00%.
Zacks Rank: Though Ensco carries a Zacks Rank #3 (Hold), the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stock to Consider
An energy firm with the right combination of elements to post an earnings beat this quarter is:
Delek Logistics Partners, LP (DKL) with Earnings ESP of +5.56% and Zacks Rank #1 (Strong Buy).
Read the Full Research Report on ESV
Read the Full Research Report on RIG
Read the Full Research Report on HERO
Read the Full Research Report on DKL
Zacks Investment Research
