We have downgraded contract drilling services provider Helmerich & Payne Inc. (HP) shares to Neutral from Outperform after reviewing its quarterly operating performance.
The company reported weaker-than-expected results for the second fiscal quarter of 2011 (three months ended March 31, 2011) due to muted performances from its offshore and international operations. Earnings per share from continuing operations (excluding special items) came to 93 cents, below the Zacks Consensus Estimate of 97 cents.
(Read our full coverage on this earnings report: Helmerich & Payne Misses on EPS).
We also remain concerned about weak natural gas fundamentals, which are likely to limit Helmerich & Payne’s ability to generate positive earnings surprises. The glut in domestic gas supplies still exists, with storage levels remaining close to their five-year average. This will continue to weigh on natural gas prices in the near-to-medium term.
Helmerich & Payne, which specializes in shallow to deep drilling in gas producing basins of the U.S., remains particularly exposed to this situation.
Given these headwinds, we expect Helmerich & Payne shares to perform in line with the broader market. We think that the current valuation is fair and adequately reflects the company’s future growth prospects. Our new long-term Neutral recommendation is supported by a Zacks #3 Rank (short-term Hold rating).
Incorporated in 1940, Helmerich & Payne is engaged in the contract drilling of oil and gas wells in the U.S. and internationally. The company competes with other established U.S. drilling companies including Patterson-UTI Inc. (PTEN) and Nabors Industries (NBR). Helmerich & Payne’s contract drilling business consists of three reportable business segments: U.S. land drilling, offshore drilling and international land drilling.
HELMERICH&PAYNE (HP): Free Stock Analysis Report
NABORS IND (NBR): Free Stock Analysis Report
Be the first to comment