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3 Terrible Reasons to Sell Helmerich & Payne, Inc.

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There is no denying the suffering going on today in the oil and gas services industry. Helmerich & Payne, Inc. 's(NYSE: HP) weak top- and bottom-line results in fiscal 2016 are clear evidence of that. But there's more going on here than the stock market seems to realize, and that's why it would be a mistake to sell this industry leader today. Here are three things that might have you worried -- and why they aren't as big of a deal as you think.

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Helmerich & Payne has more in-demand AC rigs than anyone else. Image source: Helmerich & Payne, Inc.

There's no "secret" math on this one like with cash flow, a low utilization rate is bad news. There is a twist, though: Helmerich focuses on building the best rigs. So, its portfolio is stacked with in-demand AC drive rigs that are more efficient and faster than older rigs. These are the types of rigs that will be put to work first when the cyclical oil and gas drilling industry picks up again. And Helmerich & Payne happens to have more of these rigs than any other industry player.

So, a low utilization rate is bad today. But there's a good reason to believe the outlook is brighter for Helmerich than for its peers.

How long will it last?

So far, so good for Helmerich & Payne. But a lot depends on an industry upturn in the oil and gas sectors. Sure, energy prices have risen lately, but they aren't what they used to be. And there's no way to tell when a more robust recovery might take place. Don't dump Helmerich because of that, though. It's built for survival.

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Helmerich & Payne is more durable than peers because it has less debt. Image source: Helmerich & Payne, Inc.

The best example of that is the company's rock-solid balance sheet. At the end of September, long-term debt made up around 10% of the company's capital structure. That number was closer to 50% at competitors Nabors Industries (NYSE: NBR) and Precision Drilling (NYSE: PDS) . That gives Helmerich & Payne a lot more breathing room when times get tough, since it doesn't have to worry nearly as much about interest expenses as some of its largest peers.

More important for investors, low debt levels mean Helmerich & Payne is well positioned to weather this downturn. And, of course, make it out the other side in one piece so it can fully benefit from the next upturn.

Drilling deep

If you look at the surface results at Helmerich & Payne without doing a deep dive, you'd rightly think it wasn't worth owning, but that would be a mistake. For example, GAAP earnings were in the red in fiscal 2016, but cash flow, the lifeblood of a business, was robust. Sure, only 25% of its drill rigs actually doing any drilling, but that problem will eventually fix itself since most of the rigs the company owns are top-of-the-line offerings. And while the oil and gas services industry has indeed been out of favor, Helmerich's rock-solid balance sheet means it will be an industry survivor. Add it all up, and now is not the time to sell Helmerich & Payne.

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Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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