Friday, November 5, 2010

Ensign Energy Services 2

If you want to invest in Canadian oil and gas without the volatility and risk of investing in an oil or gas company, this may be the company (TSX-ESI) for you. It is also a good dividend payer. This stock did have dividend increases in 2009 and 2010, but only at a much lower than usual rate of around 3%. At least, the increases are better than the current rate of inflation. A lot of stocks have not done dividend increases in 2009 and 2010, although, I must admit that 2010 is not over yet.

I always first look at the Insider Trading report. For this stock, there was a wee bit of buying in the first part of this year, but it is such a small amount it means nothing. A good thing is that there has been no Insider Selling. Another good thing is that this company has a staff stock buying program and staff has been buying under this program. Also, recent stock options given out have been retained. These show important confidence of the company’s staff in their company.

So, what does my spreadsheet say about the current stock price of $12.87? When looking at P/E ratios, I find that the 5 year median low is just 8.6 and the 5 year median high is 14.8. The current P/E ratio, although in absolute terms is not high at 17.4, it is still higher than the median high. However, the P/E ratio had reached as high as 22 in both 2009 and 2009, but the high has usually been below 17.

The stock price is just below the current Graham Price I get of $13.03. It is always a good sign to see the price at or below the Graham Price, but it has often been quite a bit below the Graham Price. The one ratio that shows a very good current price is the Price/Book Value. I get a 10 year P/B of 2.64 and a current ratio of 1.26. This means that the current ratio is less than 50% of the 10 year average. In absolute terms, a P/B ratio of 1.26 is a very good ratio.

The last thing to look at is the dividend yield. The current yield of 2.7% is higher than the 5 year average of 1.7% and is also higher than the 10 year average low of 2%. So if you look at the yield it shows a good current price, as does the P/B ratio. The good thing about both of these ratios is that they are not based on estimates. I should also note that sites that give a P/E ratio based on the last 4 quarters earnings give this stock a P/E ratio of 22, which is even higher than my ratio of 17.4.

When I look at analysts recommendations, I find Strong Buy, Buy and Hold recommendations. I have also found one Sell recommendation. The consensus recommendation would be a Buy. (See my site for information on analyst ratings.) Some analyst give recommendations based on what they think will happen in the short term and some give recommendations based on what they think will happen in the long term. Certainly, this stock will recover, but it might not been in the short term and this is why you get a variety of recommendations.

This is the sort of stock you would buy for increasing dividends and long term gains. A negative might be that in 2010 it is expected that they will pay out just under 50% of earnings in dividends. However, this would be a short term spike in this payout ratio. It is expected that less than 35% of earnings for 2011 will be paid in dividends. Another important Payout Ratio is the payout from cash flow. This payout ratio is not expected to go above 20% and this is good.

With headquarters in Calgary, Alberta, Ensign is an industry leader in the delivery of oilfield services worldwide to the oil and gas industry. They operate in North and South American, Middle East, South East Asia, Africa, Australia and New Zealand. Its web site is here Ensign Energy. See my spreadsheet at esi.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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