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Gold/Mining/Energy : Ensco International Inc. (ESV) -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (1938)	2/27/2008 8:48:19 AM
From: Dennis Roth	Read Replies (1) \| Respond to of 2005

ENSCO International Inc. (ESV): Solid execution but still concerned with jackup exposure - Goldman Sachs - February 27, 2008 What's changed ESV reported 4Q2007 EPS of $1.66, above our/consensus estimate of $1.55. We raised our 2008/09/10 EPS estimates by 7%/4%/5% to $8.19/$8.63/$8.58. We also raised our 12-month price target to $61 from $57 to reflect our higher estimates (6.2X 2008E EV/DACF). Implications (1) ESV continues to deliver superior cost control with 4Q2007 costs 3% below our estimate. Cost guidance for 2008 of 12-13% above 2007 is also inline with our estimate and at the low end of the peer group. ESV expects 2008 core inflation of 7-8%, which is less than the 10% experienced in 2007 – we see upside to labor costs for the group but view ESV as favorably positioned due to lower labor cost pressures in the US Gulf of Mexico. (2) Management continues to be bullish on the international jackup market but on the other hand stresses high contract coverage of 85% in 2008. We believe that the international jackup market has peaked and continue to expect dayrates to decline in 2H2008 and 2009 as new uncontracted capacity enters the market. We would not be surprised to see a number of supportive data points over the next 3-6 months but ultimately expect rates to come under pressure. (3) ESV is growing more positive on the US Gulf of Mexico jackup market and expects higher spec rigs to fare better over the near-term. We believe it is necessary for additional rigs to leave the region before rates can meaningfully improve. We currently forecast a gradual increase in rates over the course of 2008 primarily due to higher natural gas prices. Valuation ENSCO currently trades at 6.3X/5.3X 2008E EV-DACF/EV-EBITDA, a 16%/3% discount to closest peer Rowan. Key risks (1) Capacity additions could result in lower utilization and dayrates; (2) cost inflation; and (3) a severe correction in commodity prices.