Helmerich & Payne Inc. (HP - Free Report) hit a new 52-week high of $107.95 on Mar 26, the fourth consecutive day it has done so. This contract drilling services provider gained nearly 27% in the last 3 months and over 10% in the past two weeks. What is more impressive is that the recent figures are supported by robust trading volume.
This could well be seen just as a balloon effect of the overall positive market scenario and the favorable investor sentiment that is pushing the stock to new highs everyday. But is it really so? Let’s dig in a bit deeper.
Helmerich & Payne is a major player in the U.S. land drilling market with 15% market share. The company also has offshore operations and international land operations but revenues are driven primarily by the U.S. land operations.
One big challenge for drilling contractors is to keep their rigs contracted. Helmerich & Payne is well placed in this aspect with 86% of its 358 total rigs (excluding 17 rigs under construction) in the working or contracted phase, as of Mar 24.
The company’s U.S. land activity has been increasing over the years and the rig count is now substantially higher than its industry peers like Nabors Industries Ltd. (NBR - Free Report) , Patterson-UTI Energy Inc. (PTEN - Free Report) and Precision Drilling Corporation (PDS - Free Report) . Of the 279 active rigs in the U.S. land fleet, 156 are under term contracts and 122 are operating in the spot market.
Going forward, Helmerich & Payne should significantly benefit from the increase in demand for efficient and technologically advanced rigs as well as the improving U.S. spot market pricing considering its young fleet and strong foothold in the region.
Also, the company’s shift in focus from age-old vertical drilling to the more contemporary horizontal or directional drilling could prove useful in the long run. These new-age wells comprise over 75% of the wells drilled in the U.S.
Helmerich & Payne is a well established contract drilling service provider but what promises does it hold for its investors? The price appreciation already talks about the growth story. But the company could pass as a value stock as well with a lucrative dividend yield of 2.35%. A substantially low debt-to-capitalization ratio of 1.7% (As of Dec 31, 2013) and current ratio of 2.91 further support the cause. The low leverage and high availability of cash makes Helmerich & Payne ideal to sustain any weakness in the economy.
To conclude, Helmerich & Payne’s Zacks Rank #1 (Strong Buy) and upward revisions in the consensus estimates add to the fact that the price appreciation is not just a fluke but is well deserved.