Ensco's Next Significant Debt Maturity Offers 8.1% Yield

Ensco (ESV) reported its first quarter earnings a couple of weeks ago. The company missed earnings and revenue expectations. By all accounts, the company continued its operational struggle as it tries to rebound with the increase in energy prices. The company's 2024 bonds remain priced under par and combined with an 8% coupon, currently offer investors 8.1% yield to maturity. A deeper dive into the company's financials shows progress towards the company's ability to service its debt.

Source: FINRA
Ensco's financial weakness in the first quarter was driven by two forces. First, the company's revenue declined by more than $50 million or 12% from the prior year. Second, the company's contract drilling expenses increased by nearly $50 million. This expense increase was mainly due to the addition of new rigs into service, according to the conference call. Ultimately, Ensco's operating income finished the quarter $122 million lower than the first quarter of 2017.

Source: 10-Q
Ensco's balance sheet continued to look strong in the first quarter. The company continued to hold in between $800 and $900 million in cash and short-term investments. Additionally, the company did increase its long-term debt by nearly $250 million. Overall, at the end of the quarter, Ensco had $8.5 billion in shareholder equity.

Source: 10-Q
Ensco's first quarter cash flow also underperformed the first quarter of 2017. The company's... Read more

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