Technical indicators for ESV are bullish and S&P gives ESV a positive 4 STAR buy rating. http://www.marketintelligencecenter.com/articles/600618
Morningstar: Thesis 04-28-08 Ensco International's strategy is a breath of fresh air in a contract drilling industry where differentiation is hard to come by. Its cost-efficient approach results in industry-leading operating margins and strong short-term returns. ...nsco International is a global contract oil and natural-gas driller with a fleet of 46 mostly premium jack-ups and a small but growing semisubmersible fleet. Strategically, we think the firm is among the savviest in the industry for several reasons. First, it astutely acquired most of its fleet at depressed prices from 1993 to 2002. Second, the firm had the foresight to engage in a risky $1.3 billion 10-year fleet upgrade program beginning in 1996, when few expected the current lucrative boom. The program has given Ensco one of the industry's youngest fleets at an average age of seven years--a third of the industry average. Ensco had near-perfect timing, with demand for offshore drilling rising due to higher commodity prices and large discoveries offshore. Although the company now benefits from minimal downtime, its peers are facing increased repair costs and lengthy downtimes, resulting in painful lost opportunity costs because day rates are significantly higher than just a few years ago. Third, the firm is building cost-efficient deep-water rigs by focusing on meeting mass-market drilling requirements rather than addressing the ultra-deep-water market with its specialized and expensive equipment. This segmentation allows the firm to build rigs 30% to 45% cheaper than its peers while still achieving competitive day rates. In our view, Ensco only needs to continue to execute its successful strategy, which should lead to improved day rates and fleet utilization in the next few years ... Valuation We are raising our fair value estimate to $85 per share from $70. We are not seeing any evidence of a slowdown in demand for deep-water rigs. As a result, we expect Ensco's deep-water rigs to generate higher day rates and operating margins than previously thought. Over the next few years, we expect day rates to expand because of higher newly contracted rates and old contracts expiring, letting the firm obtain much higher market rates. Utilization levels should also increase until about 2009 because of less downtime incurred due to the upgrade program. However, we expect significant declines in both utilization and day rates from 2010 to 2012 when the first of the most-likely delayed jack-ups will be arriving in the market. Our fair value estimate is sensitive to our long-term day rate assumption. A 20% decline in our long-term day rate assumption would decrease our fair value estimate to $57, whereas a 20% boost in our day rate assumption would boost our fair value estimate to $113. ...