UPDATE: Goldman Sachs Raises ENSCO (ESV) to Buy; Noble Corp (NE) Raise to Neutral and Diamond Offshore (DO) Cut to Sell
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(Updated - September 21, 2016 8:22 AM EDT)
Goldman Sachs upgraded ENSCO International Plc (NYSE: ESV) from Neutral to Buy with a price target of $10.50, implying upside of 53%. Analyst Waqar Syed highlighted attractive valuation, jack-up leverage and balance sheet strength.
"Our offshore rig market study finds: (1) Offshore rig weakness is to persist through 2020 for both floaters/jack-ups, but we prefer jack-ups over floaters as demand should pick up first for jackups; (2) Reiterate our Cautious coverage view on offshore drillers," said Syed.
Discussing the upgrade of ENSCO, the analyst said, "ESV has been the worst-performing offshore driller ytd, owing to dividend cuts and removal from the S&P 500 index. We upgrade ESV to Buy, as (1) It is trading at 200-300bp discount to peers through 2020. (2) ESV offers one of the highest leverage to jack-ups, with presence in both the Middle East and Asia-Pacific markets. (3) Following its recent equity offering, it has one of the best balance sheet and liquidity positions."
On Diamond Offshore Drilling and Noble Corp the analyst said, "Despite DO’s recent correction, it has fallen 27% ytd versus 48% for NE, and we see additional downside to our $10/share target price. Key reasons: (1) DO is significantly over-earning versus the spot market, and as key above-market contracts expire through 2020, EBITDA to fall the most in the peer groups, down 40%/yr versus 10% for NE, who has already taken a hit. (2) 76% of DO’s 2018E gross profits is derived from three key contracts, and should one get cancelled, EBITDA could correct earlier than forecast. (3) DO has the least jack-up exposure within the peer group."
Shares of ENSCO International Plc closed at $6.64 yesterday.
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