Patterson-UTI Lowered to Sell

Our downgrade of Patterson-UTI (PTEN - Analyst Report) shares reflects our bearish view of the North American land drilling scene. The expected drop off in drilling activities, in response to a combination of commodity-price weakness and credit market tightness, will weigh on the fortunes of all oilfield service players in general and land drillers (such as Patterson-UTI) in particular.

Patterson-UTI remains particularly vulnerable to this negative outlook given its lack of contract coverage and heavy spot market exposure. We expect dayrate and margin pressures to continue into 2010 even as normal drilling demand resumes later this year due to the heavy capacity overhang.

Our new $8 price objective reflects 2009 P/E and EV/EBITDA multiples of 10.8x and 4.5x, respectively, both well within historical trading ranges.

Read the full analyst report on PTEN

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