Helmerich & Payne Inc.
) hit a new 52-week high of $107.95 on Mar 26, the fourth
consecutive day it has done so. This contract drilling services
provider gained nearly 27% in the last 3 months and over 10% in
the past two weeks. What is more impressive is that the recent
figures are supported by robust trading volume.
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This could well be seen just as a balloon effect of the overall
positive market scenario and the favorable investor sentiment
that is pushing the stock to new highs everyday. But is it really
so? Let's dig in a bit deeper.
Helmerich & Payne is a major player in the U.S. land drilling
market with 15% market share. The company also has offshore
operations and international land operations but revenues are
driven primarily by the U.S. land operations.
One big challenge for drilling contractors is to keep their rigs
contracted. Helmerich & Payne is well placed in this aspect
with 86% of its 358 total rigs (excluding 17 rigs under
construction) in the working or contracted phase, as of Mar 24.
The company's U.S. land activity has been increasing over the
years and the rig count is now substantially higher than its
industry peers like
Nabors Industries Ltd.
Patterson-UTI Energy Inc.
Precision Drilling Corporation
). Of the 279 active rigs in the U.S. land fleet, 156 are under
term contracts and 122 are operating in the spot market.
Going forward, Helmerich & Payne should significantly benefit
from the increase in demand for efficient and technologically
advanced rigs as well as the improving U.S. spot market pricing
considering its young fleet and strong foothold in the region.
Also, the company's shift in focus from age-old vertical drilling
to the more contemporary horizontal or directional drilling could
prove useful in the long run. These new-age wells comprise over
75% of the wells drilled in the U.S.
Helmerich & Payne is a well established contract drilling
service provider but what promises does it hold for its
investors? The price appreciation already talks about the growth
story. But the company could pass as a value stock as well with a
lucrative dividend yield of 2.35%. A substantially low
debt-to-capitalization ratio of 1.7% (As of Dec 31, 2013) and
current ratio of 2.91 further support the cause. The low leverage
and high availability of cash makes Helmerich & Payne ideal
to sustain any weakness in the economy.
To conclude, Helmerich & Payne's Zacks Rank #1 (Strong Buy)
and upward revisions in the consensus estimates add to the fact
that the price appreciation is not just a fluke but is well