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Tracey Ryniec

Parker Drilling Company

PKD

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Now's your chance to get into the energy sector on the cheap. Parker Drilling Company (PKD - Snapshot Report) has sold off in 2012 on jitters about natural gas prices. That has pushed this Zacks #1 Rank (Strong Buy) to a forward P/E of just 8.1x, down from the 14x it traded at in December 2011.

Parker Drilling provides contract drilling solutions, rental tools and project management to the energy industry.

It has 24 land rigs and 2 offshore barge rigs in its international fleet. Its U.S. fleet consists of 13 barge rigs in the Gulf of Mexico, 1 land rig located in the U.S. and 2 land rigs in Alaska undergoing commissioning.

The company's rental tool segment supplies equipment to operators on land and offshore in the U.S. and some international markets.

Changes at the Top

On Mar 6, the company announced that David Mannon, the CEO, was leaving effective Mar 9 to pursue other interests.

In the interim, Robert Parker Jr., the company's executive chairman and previous CEO, would resume the CEO duties while a search was begun for a new CEO.

Mannon had been CEO from 2004.

Parker Drilling Beat by 13.3% in the Fourth Quarter

On Feb 23, Parker reported fourth quarter results and surprised on the Zacks Consensus Estimate for the third straight quarter. Earnings were 17 cents compared to the consensus of 15 cents. It made just 1 cent in the same period a year ago.

Revenue rose 4.5% to $181.1 million from $173.3 million in the fourth quarter of 2010. Gross margin as a percentage of revenues increased to 40.9% from 31.3%.

The Rental Tools segment continues to be hot even as U.S. drilling activity is shifting focus to oil and liquids-rich gas drilling and away from natural gas. Rental tool revenue jumped 30% to $63.9 million from $49.3 million.

Oil-directed drilling continues in sustained activity in the Gulf of Mexico.

Double Digit Earnings Growth Expected

Analysts are still bullish about 2012.

The 2012 Zacks Consensus Estimate has risen to 75 cents from 68 cents 60 days ago.

That is earnings growth of 38.3% as the company made just 54 cents last year.

The Stock Is Cheap

Investors have gotten scared in 2012 as natural gas prices have fallen. Shares have weakened considerably after hitting a 2-year high in late 2011.

This has created a buying opportunity for those hoping to get into the energy sector on the cheap.

In addition to a low P/E, Parker Drilling also has a low price-to-book ratio of just 1.3. A P/B under 3.0 usually means there is value.

Parker also has a price-to-sales ratio of 1.0. That is right on the cut-off as a P/S under 1.0 usually means that a company is undervalued.

Parker is scheduled to report earnings on May 9. Until then, it is an attractive way for a value investor to increase their energy exposure at a cheap price.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at traceyryniec.

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