Other winners: Oceaneering and Ensco
Oceaneering International (NYSE:OII), although not an apples-to-apples comparison, is one of my favorite companies in the drilling sector. Rather than providing drilling rigs, Oceaneering International (NYSE:OII) provides engineering services and project management to companies who build rigs. The company’s services include remotely operated vehicle (ROV) services, deepwater intervention and diving services, testing, inspections, and more. Oceaneering International (NYSE:OII) is a good play on the expected increase of demand for drilling rigs, as well as the demands that newer rigs meet more rigorous safety standards than they have in the past.
Oceaneering has performed exceptionally well recently, and is up about 56% since the beginning of 2013. However, the company is by no means too expensive. The P/E of 24.6 times this year’s earnings is justified by the 19.4% and 17.3% earnings growth expected over the next two years. Additionally, Oceaneering has an excellent balance sheet which features more cash than debt.
ENSCO PLC (NYSE:ESV) is very similar to Transocean in terms of business model, just slightly smaller. The company is seen as being somewhat riskier, as it is known to construct new floating rigs on speculation, which has paid off in the past. Although ENSCO PLC (NYSE:ESV) pays a slightly lower dividend yield of 3.47%, shares are pretty cheaply valued right now at 8.8 times this year’s earnings. Using the same growth figure as we did with Transocean, the company’s earnings are expected to grow by 33% over the next two years. This isn’t quite as stellar as the growth that’s expected for Transocean, but this is more than made up for by the lower price of admission.
Final thoughts
Any of these three would make an excellent addition to a portfolio needing exposure to oil drilling. I prefer Transocean for its industry-leading technological position, high yield, and ambitious growth. The hefty backlog doesn’t hurt either (which is about three times the size of ENSCO PLC (NYSE:ESV)’s, by the way). With Transocean LTD (NYSE:RIG) set to report its latest earnings on Wednesday, August 7, pay particular attention to how the company’s backlog is developing and any insight by the company on the few legal implications still hanging over its head.
The article Why You Should Own This Oil Drilling Player originally appeared on Fool.com and is written by Matthew Frankel.
Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Oceaneering International (NYSE:OII). The Motley Fool owns shares of Transocean. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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