TRADE INSTRUCTIONS
Date: July 11, 2017
Name: ENSCO PLC
Symbol: ESV (NYSE)
Type: Open
Limit: Buy below $5.15

TRADE TARGETS
Holding Period: 4 months
Target Return: 21.3%
Annualized Return: 63.9%
Target Price: $6.25
Stop Loss Level: $4.25

COMPANY DESCRIPTION
Ensco, founded in 1975 and headquartered in London, provides offshore contract drilling services to the oil and gas industry worldwide operating through three segments: Floaters, Jackups, and Other. The company owns and operates an offshore drilling rig fleet of 68 rigs, including 30 located in the Middle East, Africa, and the Asia-Pacific, which comprises 4 rigs under construction; 21 situated in North and South America, including Brazil; and 17 located in Europe and the Mediterranean. Link to company website.

TRADE RATIONALE
It looks like our Rapid Profits Matrix thinks oil prices will soon get back above $50, and if they do then ESV should see a nice bounce given its relatively strong balance sheet. With a current ratio of 4.97 and total cash per share of $6.84 (compared to its $5 share price), ESV can wait out the current oil slump until prices rebound.

How soon that may happen is anyone’s guess, and until it does it is unlikely ESV will see much appreciation. In part that’s due to the fact the customer base of the oil industry it services – deep sea drillers – requires higher oil prices to achieve profitability than their land-based kin.

Meanwhile, its acquisition of Atwood Oceanics received U.S. regulatory approval two weeks ago to move forward in an all-stock transaction that is already reflected in ESV’s share price. If oil prices do rebound, then this expansion into off-shore exploration and drilling could end up looking like a genius move.

To a large extent that may depend on how the scheduled IPO of Saudi Aramco rolls out over the next year. It would not be surprising to see Saudi Arabia put pressure on OPEC to drive up oil prices leading up to the offering so it can achieve its stated objective of selling 5% of the business for $100 billion, which would also be very good for ESV.

Of course, there is no assurance that oil prices will go up at all, in which case this trade may not pan out. But there is a lot of upside potential in this trade, and even a modest goose in oil prices could generate a double-digit profit very quickly.

P.S. the next scheduled quarterly earnings release date for ESV is July 27.

NOTE: This is a $5 stock, so who needs options? Nevertheless, ESV is optionable and there is a lot of open interest in the 9/15/2017 $5 call options if you want to spend 50 cents instead of $5 to control a share of stock.