Perilous Reversal Stock: Ensco (ESV)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Ensco ( ESV) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Ensco as such a stock due to the following factors:

  • ESV has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $136.6 million.
  • ESV has traded 2.3 million shares today.
  • ESV is down 3% today.
  • ESV was up 9.6% yesterday.

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More details on ESV:

Ensco plc provides offshore contract drilling services to the oil and gas industry worldwide. The company operates through three segments: Floaters, Jackups, and Other. The stock currently has a dividend yield of 2.4%. Currently there are no analysts that rate Ensco a buy, 5 analysts rate it a sell, and 9 rate it a hold.

The average volume for Ensco has been 6.0 million shares per day over the past 30 days. Ensco has a market cap of $5.8 billion and is part of the basic materials sector and energy industry. The stock has a beta of 1.27 and a short float of 9% with 4.19 days to cover. Shares are down 16.9% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Ensco as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Energy Equipment & Services industry and the overall market, ENSCO PLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • ESV's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 50.45%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • ENSCO PLC has improved earnings per share by 9.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ENSCO PLC swung to a loss, reporting -$11.70 versus $6.08 in the prior year. This year, the market expects an improvement in earnings ($3.92 versus -$11.70).
  • ESV's debt-to-equity ratio of 0.72 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that ESV's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.14 is high and demonstrates strong liquidity.
  • The gross profit margin for ENSCO PLC is rather high; currently it is at 55.47%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 27.89% significantly outperformed against the industry average.

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