We are maintaining our long-term Neutral recommendation on Helmerich & Payne Inc. (HP) on the back of superior drilling fleet and a healthy financial profile that is partially offset by weak oil and natural gas fundamentals.
Our optimism is supported by the company’s brightthird quarter fiscal 2011 results (three months ended June 30, 2011), aided by strong contributions from most of its business units. Earnings per share from continuing operations (excluding special items) were $1.00, which surpassed the Zacks Consensus Estimate of 98 cents. Revenues of $644.1 million also beat our projection by 1.6%.
Tulsa, Oklahoma based Helmerich & Payne is a major land and offshore drilling contractor in the western hemisphere, having the youngest and most efficient drilling fleet. The company specializes in shallow-to-deep drilling in oil and gas-producing basins of the U.S. and in drilling for oil and gas in international locations.
Additionally, we believe Helmerich & Payne’s technologically advanced FlexRigs are the keys to its success, helping it to increase the count of active rigs and maintain relatively strong daily-rate margins even during the current uncertain period. The company’s strong contract drilling backlog, which now stands at nearly $3.7 billion, not only reflects steady demand from its customers but also offers long-term earnings and cash flow visibility.
However, as a company operating in the energy sector, Helmerich & Payne remains exposed to the volatile oil and gas prices.Any significant reduction in energy prices could depress the level of exploration and production activity, resulting in a corresponding decline in demand for the company’s services.
With operations across several international regions (which accounted for approximately 13% of its consolidated operating revenues during fiscal 2010) the company is susceptible to risks associated with overseas business. Such risks include embargoes and/or expropriation of assets, exchange rate risks, terrorism and political/civil sentiment.
Helmerich & Payne’s operations are subject to a number of operational risks, including inclement weather, blowouts and well fires. Moreover, stiff competition from peers such as Nabors Industries Ltd. (NBR) and Noble Corp. (NE) remain our core areas of concern.
Helmerich & Paynecurrently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
HELMERICH&PAYNE (HP): Free Stock Analysis Report
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