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We expect onshore contract driller, Patterson-UTI Energy Inc. (PTEN - Analyst Report), to beat expectations when the company reports its first-quarter 2013 results before the opening bell on Apr 25, 2013.

Why a Likely Positive Surprise?

Our proven model shows that Patterson-UTI is likely to beat earnings because it has the right combination of two key factors:

Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate of 37 cents and the Zacks Consensus Estimate of 36 cents, stands at +2.78%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3 (Hold): The stocks with Zacks Rank #1 (Strong Buy), #2 (Buy) and #3 (Hold) have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered while going into an earnings announcement.

The combination of Patterson-UTI’s Zacks Rank #3 (Hold) and +2.78% ESP makes us very confident of a positive earnings beat on Apr 25, 2013.

What is Driving the Better-than-Expected Earnings?

Patterson-UTI, the second-largest land drilling contractor of North America after Nabors Industries Ltd. (NBR - Analyst Report), has a large and high-quality fleet of drilling rigs. In particular, the company’s technologically-advanced ‘Apex’ rigs are the key to its success.

Moreover, Patterson-UTI’s proprietary design makes the rigs move and drill more efficiently than the regular ones and also makes operations safer. As such, these rigs are better suited for the new demands of the exploration business, therefore, command higher dayrates and utilization than rigs from other land drillers. 

Additionally, we appreciate Patterson-UTI’s recent decision to retire 36 rigs from its fleet. We expect the retirement to act as a positive step towards balancing the market, given the extreme overcapacity caused by depressed natural gas prices.

All these bullish points are reflected in the trailing four-quarter average surprise of 16.41%, which was greatly supported by the 42.86% surprise in the last-reported quarter. The outperformance in the last quarter was primarily driven by the pressure pumping operations, which held up well against adverse market conditions. 

Other Stocks to Consider

Here are some other firms you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

  • EPL Oil & Gas Inc. has an earnings ESP of +12.50% and a Zacks Rank #1 (Strong Buy)
  • Stone Energy Corp. (SGY - Analyst Report) has an earnings ESP of +2.86% and a Zacks Rank #1 (Strong Buy)

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