As the drilling industry is rebounding on the backs of a jump in rig counts and oil prices over the past month, fundamentally sound companies Helmerich & Payne, Inc. (HP), Precision Drilling Corporation (PDS), and Superior Drilling Products, Inc. (SDPI) with strong fundamentals could be ideal investments.
Let's dive into the drilling industry to understand the inflection points driving these key players.
The energy drilling industry faced challenges due to uncertainties surrounding the slowing global economic growth and inflationary pressures. That, combined with supply-chain tightness, is raising costs in the form of increased expenses related to maintenance and inventory.
On the bright side, oil and natural gas prices have rebounded sharply in an attempt to revisit their multi-year highs last year due to rising demand and geopolitical tensions surrounding the Russian invasion of Ukraine.
According to the Baker Hughes Rig Counts, which act as an important measure of the drilling industry’s performance, as of April 6, the U.S. rig count stood at 751, up by 62 from the prior year. As of March, the number of active units in the international market has also gained sharply from the prior year.
Moreover, according to Technavio, the drilling rig market growth is estimated to accelerate at a 6.2% CAGR and register an incremental growth of $15.36 billion between 2023 and 2027.
The industry’s momentum and steady growth in rig count will likely encourage drilling activity in the near term. Therefore, quality stocks HP, PDS, and SDPI seem poised for growth.
Helmerich & Payne, Inc. (HP)
HP provides drilling solutions and technologies for oil and gas exploration and production companies. It designs, fabricates, and operates high-performance drilling rigs in conventional and unconventional plays globally. The company operates through three segments: North America Solutions; Offshore Gulf of Mexico; and International Solutions.
In terms of forward EV/Sales, HP is trading at 1.35x, 24.6% lower than the industry average of 1.79x. The stock’s forward EV/EBITDA of 3.83x is 23.1% lower than the 4.98x industry average. Furthermore, the stock’s forward Price/Book of 1.34x is 10.2% lower than the 1.49x industry average.
HP’s operating revenues rose 75.6% year-over-year for the first quarter that ended December 31, 2022, to $719.64 million. The company’s operating income from continuing operations and net income amounted to $144.22 million and $97.15 million, versus an operating loss and net loss of $42.61 million and $51.36 million, respectively. Also, its EPS stood at $0.91 compared to a loss per share of $0.48.
Analysts expect HP’s EPS and revenue to increase 372.7% and 42.5% year-over-year to $1.28 and $784.22 million, respectively, in the fiscal third quarter (ending June 2023). It surpassed the EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 6.5% over the past five days to close the last trading session at $37.83.
HP’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and Momentum and a B for Quality. In the 17-stock Energy - Drilling industry, it is ranked #2. To see additional POWR Ratings for HP for Value, Stability, and Sentiment, click here.
Precision Drilling Corporation (PDS)
Based in Canada, PDS provides onshore drilling, completion, and production services primarily to oil and natural gas and geothermal exploration and production companies in North America and the Middle East. The company operates through two segments: Contract Drilling Services; and Completion and Production Services.
In terms of trailing-12-month EV/Sales, PDS is trading at 1.05x, 41.4% lower than the industry average of 1.80x. Also, its trailing-12-month EV/EBITDA and Price/Sales multiples of 3.21 and 0.49 are 35% and 61.8% lower compared to the industry averages of 4.94x and 1.28x, respectively.
For the fourth quarter that ended on December 31, 2022, PDS’ revenue increased 72.9% year-over-year to C$510.50 million ($379.39 million). Its adjusted EBITDA rose 42.6% from the year-ago value to C$91.09 million ($67.69 million). Net earnings came in at C$3.48 million ($2.59 million) and C$0.27 per share, compared to a net loss of C$27.34 million ($20.32 million) and C$2.05 per share in the prior-year period.
Street expects PDS’ revenue for the first quarter (ended March 31, 2023) to increase 42.7% year-over-year to $391.63 million. Also, the company surpassed revenue estimates in each of the trailing four quarters.
Over the past five days, the stock has gained 2.4% to close the last trading session at $52.68.
It’s no surprise that PDS has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Momentum and a B for Growth and Value. Within the same industry, it is ranked first.
In addition to the POWR Ratings we stated above, we have given PDS ratings for Stability, Sentiment, and Quality. Get all PDS ratings here.
Superior Drilling Products, Inc. (SDPI)
SDPI operates as a drilling and completion tool technology company in North America and internationally. It designs, engineers, manufactures, sells, and repairs drilling and completion tools to provide cost-saving solutions that drive production efficiencies for the oil and natural gas drilling industries.
In terms of forward EV/Sales, SDPI is trading at 1.34x, 25.3% lower than the industry average of 1.80x. Likewise, its forward Price/Sales multiple of 1.18 is 7.9% lower than the 1.28 industry average.
SDPI’s total revenue increased 33% year-over-year to $5.25 million in the fiscal 2022 fourth quarter (ended December 31, 2022). Its operating income improved 677.1% year-over-year to $701.10 thousand. The company’s adjusted EBITDA came in at $1.35 million, registering an increase of 63.2% from the prior-year period. Also, its net income amounted to $333.10 thousand and $0.01 per share in the same period.
The consensus revenue estimate of $5.90 million for the fiscal second quarter (ending June 2022) represents a 30% improvement year-over-year. EPS for the ongoing quarter is expected to amount to $0.02.
Shares of SDPI have gained 26.5% over the past six months and 8.8% over the past year to close the last trading session at $1.
SDPI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Momentum and Sentiment and a B for Quality. In the same industry, it is ranked #3 out of 17 stocks. Click here to see the other ratings of SDPI for Growth, Value, and Stability.
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HP shares were trading at $37.60 per share on Thursday afternoon, down $0.23 (-0.61%). Year-to-date, HP has declined -23.33%, versus a 7.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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