Unit Corporation

Unit Corporation is utilizing both its drilling and its exploration divisions to score big profits while the energy sector booms. The company has surprised on earnings three out of the last four quarters. Unit's forward P/E is only 10.17.

Full Analysis

Unit Corporation (UNT - Snapshot Report) is an oil and natural gas exploration and production company which also engages in contract drilling of onshore oil and natural gas wells.

Unit, a Zacks #1 Rank (Strong Buy), is headquartered in Tulsa, OK with operations in the Mid-Continent region, including the Anadarko, Arkoma, Permian, Rocky Mountains and Gulf Coast Basins.

The company's strategy is to grow the reserve base by more than 150% of annual production and achieve a minimum 15% rate of return on invested capital. UNT also seeks to increase its market share in the drilling segment and in rig utilization.

Unit Beats Wall Street First Quarter Earnings Estimates

On May 6, Unit reported first quarter earnings that surprised on estimates by 2.48%, or 4 cents per share. Net income was $77.1 million, or $1.65 per share, compared to $64.5 million, or $1.39 per share, in the first-quarter of 2007. Analysts expected $1.61 per share.

Revenues rose 15.9% to $321.4 million from $277.3 million in 2007.

The contract drilling segment was 46% of total revenues at $147.2 million; exploration and production were 40% at $130 million, and midstream was 14% of total revenues at $44.2 million. Comparatively, in the first-quarter of the prior year, contract drilling made up 58% of total revenues. the exploration segment was 31% and midstream was 11% of revenues.

The company saw a sharp increase in commodity prices in the quarter but also higher production. Oil, natural gas liquids and natural gas production increased 15% year over year. Natural gas prices increased 31% to $8.72 per Mcfe from $6.63 per Mcfe. The number of drilling rigs also rose 4%.

"Our contract drilling segment continues to grow and keep its utilization rate steady for its drilling rig fleet, which has been between 78% to 81% for the past year. Importantly, our drilling rigs are in great demand to drill more wells for our customers and for our own account," said Larry Pinskton, President and Chief Executive Officer.

"Our exploration and production segment is very active, and currently on track to drill an estimated 280 wells during 2008," he added.

Analysts Raise Estimates on Second Quarter and the Full Year

Brokerage analysts are bullish on the company for the second quarter and the full year. Consensus estimates for the second quarter rose 9.5% to $1.84 from $1.68 per share in the last month. For the full year, estimates rose 44 cents in the last 30 days to $7.34 from $6.90 per share.

Unit's 2008 P/E is 10.17, under the industry average of 26.03. Its price-to-book of 2.41 is also under the industry average of 2.79. The company has an outstanding five year average return on equity (ROE) of 20.74%.