Ensco International Inc. (ESV) Message Board

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Gold/Mining/Energy : Ensco International Inc. (ESV)

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From: Dennis Roth	7/25/2007 8:09:42 AM
	Read Replies (1) of 2005

Expect stepped-up buybacks with balance sheet flexibility - Goldman Sachs - July 25, 2007 What's changed We are raising our 2007E EPS to $6.87 from $6.81, primarily due to lower tax rate and net interest expense assumptions partially offset by higher contract drilling costs. We are raising our 2008/09E EPS to $8.58/$9.03 from $8.35/$8.74 primarily on lower share count assumptions due to increased share buyback assumptions. Our 2007/2008E EBITDA estimates are down 1%/up 1% respectively. Our 12-month price target remains $68 (6.75X 2008 EV/DACF). Implications (1) We expect ENSCO to maintain a flexible balance sheet going forward and assign a low probability to a significant leveraged recapitalization without an acquisition. Management remains committed to growing ENSCO's deepwater exposure and will look for ways of accomplishing this over the next 12-months, in our view. With that said, we also see potential for a meaningful increase in share buybacks and expect roughly $850 million over the next 18-months (>8% of shares outstanding). (2) The US Gulf of Mexico jackup market remains challenged as operators appear willing to wait out the heart of the hurricane season. We believe additional rate pressure is possible for commodity jackups. (3) Even though ENSCO guided to slightly higher cost inflation for 2007 (mid-high teens vs. 15%), we still view the company as one of the industryâ€™s best operators. Valuation Ensco currently trades at 8.1X/6.5X on 2007/2008E EV/DACF, a 22%/9% discount to the peer group and -9%/-8% relative to its closest peer Rowan. Key risks Risks to our price targets include: (1) capacity additions could result in a flattening or depression of dayrates; (2) cost inflation due to wage pressures and/or shipyard cost overruns; and (3) a severe correction in commodity prices.

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