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Helmerich & Payne (HP)

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We are downgrading our recommendation on Helmerich & Payne, Inc. (HP) to Underperform from Neutral, as we expect the oil and gas wells contract driller to deliver dull performance in the coming months, owing to the volatile macro environment, deteriorating natural gas scenario and inflationary industry conditions.

We also expect to see a drop in earnings, under the effects of soft dayrates and operators unwillingness to sign on newbuild contracts. Operational disruptions such as inclement weather, blowouts and well fires could adversely affect Helmerich & Payne's drilling operations and emerge as a dampener for the company's growth.

We thus see considerable downside for Helmerich & Payne shares during the next few quarters. Our $41 price objective reflects a 2012 P/E multiple of 8.6x.

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