Plate-forme pétrolière Oil platform from NASA JPL. The Arguello Inc. Harvest Oil Platform is located about 10 km off the coast of central California near Point Conception. http://www-aviso.cnes.fr:8090/HTML/information/publication/news/news8/haines_uk.html catégorie:énergie fossile (Photo credit: Wikipedia)
Nov. 19
Helmerich & Payne
HP : NYSE : US$48.85
BUY Target: US$62.00
COMPANY DESCRIPTION:
Helmerich & Payne, Inc. is a contract drilling company that owns and operates land rigs in the US and international markets and some offshore platform rigs mostly in the Gulf of Mexico.
Investment recommendation
EPS of $1.39 beat consensus of $1.23 and our $1.24 estimate. On July 30,
we wrote “given that the spread between the dayrates/utilization/margins
commanded by HP’s unrivalled fleet of high-performance rigs relative to
lower-quality rigs typically increases in softer markets, we expect HP to
outperform peers and are upgrading the company to a BUY rating”. As
evidenced by HP’s very strong CY3Q12 as well as by the relatively strong
3Q12s reported by other land drillers with high-performance rig fleets (PD-T,
TDG-T, WRG-T), this growing divergence in demand for high-quality versus
lower-quality rigs has materialized. We expect this trend to continue and
continue to believe that HP offers investors “relative insulation within a
softening rig market.” Despite considering NAM activity levels lower than
previously forecast, we have slightly increased our 2013E EPS from $4.85 to
$4.95. We maintain our $62.00 target price, based on 12.7x CY2013E P/E,
in line with the range (10.2x-17.4x) we assign to peers.
Investment highlights
We believe the ongoing rig replacement cycle will benefit HP:
Management notes over the past year, the US industry rig count is down 230 rigs while the AC-drive rig count is up 70. Moreover, utilization of AC-drive rigs is over 85% while utilization of SCR and mechanical rigs is below 60%. We expect this rig bifurcation trend to continue as efficiency
drives E&P rig demand. 234 of HP’s 239 NAM rigs are AC-drive rigs.
No premium for a premium rig fleet? HP trades at 9.9x CY2013E P/E, in line with peers at 9.7x. However, given its historic outperformance,
unrivalled current fleet quality and the ongoing trend of rig bifurcation, we believe HP warrants a premium valuation. Moreover, strong CY3Q12
results and signing of 10 new E&Ps to FlexRig contracts in the past year confirm HP’s strong relative performance should continue near-term.
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