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This is Why Patterson-UTI (PTEN) Holds Substantial Upside
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The Oil/Energy space has continued to move higher this year after comfortably topping the S&P 500 leaderboard in 2021. It has generated a total return of more than 59.2% in 2022 so far compared with the S&P 500’s loss of 14%. Apart from a constructive demand picture, the sector is enjoying support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity. Naturally, there are some stocks that have been rocking since the start of the year and have strong earnings trends to back up the moves.
One such company is Patterson-UTI Energy (PTEN - Free Report) . Formed in 1978, Houston, TX-based PTEN is one of the largest onshore contract drillers in the United States and has a large fleet of pressure pumping equipment. It operates primarily in four segments: Contract Drilling (contributed 49% of the company’s 2021 revenue), Pressure Pumping (39%), Directional Drilling (8%), and Others (4%).
Lets discuss the reasons that make Patterson-UTI Energy an attractive pick:
Solid Rank and VGM Score
Patterson-UTI is a Zacks Rank #2 (Buy) stock in the Oil and Gas - Drilling industry, which carries a Zacks Industry Rank #79 — placing it in the top 31% of more than 250 Zacks industries. In addition to the favorable rank, PTEN enjoys a Zacks Value Style Score of C, Growth of A, and Momentum of A to help it round out with a VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best upside potential.
Estimate-Beating Recent Earnings
PTEN posted robust Q1 results on Apr 27, with revenues more than doubling and adjusted net loss 77% narrower. The company’s flagship Contract Drilling segment helped drive the growth, with sales ahead of the consensus mark. Patterson-UTI also continues to enjoy higher activity and pricing in its Pressure Pumping unit, with revenues and margins showing handsome gains.
Shares at 4-Year Highs
PTEN shares have been on the move higher, adding 121.7% year to date to four-year highs.
Image Source: Zacks Investment Research
However, they are yet to break out to new all-time highs. As we can see in the 10-year chart, the last peak in the shares was in 2014 before the fierce downturn in the energy sector, which lasted from 2014 to 2017. With the company experiencing the best market conditions in years, we believe the Patterson-UTI stock has enough firepower left to keep chugging along.
Image Source: Zacks Investment Research
Analyst Estimates Raised
PTEN’s earnings revisions have also trended in the right direction over the last 60 days, as analysts have consistently taken up their numbers. As a matter of fact, the Zacks Consensus Estimate for Patterson-UTI’s 2022 bottom line has flipped from a loss of 30 cents to a profit of 7 cents over the past 60 days, while next year’s number is a rise from a profit of 36 cent per share to $1.05.
Fundamental Strength
PTEN’s technologically advanced Apex rigs are the key to its success. PTEN’s proprietary design makes the rigs move faster than the conventional rigs, and drill quicker and more efficiently. Patterson-UTI’s acquisition of Pioneer Energy Services has boosted its scale and geographic presence. Following the transaction closure, Patterson-UTI possesses 166 super-spec rigs in the United States, with nearly 50% outfitted with alternative power sources to minimize emissions. In addition, this takeover expands Patterson-UTI’s geographic reach to foreign markets with the addition of eight rigs in Colombia, where Pioneer has served for the past 14 years with a well-recognized operations staff and set-up.
Bottom Line
Given this backdrop, now appears to be a solid time to consider buying Patterson-UTI. While there are some apprehensions that the company may have gotten too far ahead of itself, especially with the inflation-trigerred cost increases, the increasing demand and the tight supply of rigs should drive better pricing and longer-term gigs, and increase the contract drilling backlog moving forward. All these suggest strong long-term cash flows that should support higher price points for its shares.
Other Energy Stocks to Buy
Along with Patterson-UTI, investors interested in the energy sector might look at Equinor ASA (EQNR - Free Report) , Canadian Natural Resources (CNQ - Free Report) and Marathon Oil (MRO - Free Report) , each carrying a Zacks Rank #1 (Strong Buy), currently.
Equinor: Equinor is valued at some $119.9 billion. The Zacks Consensus Estimate for EQNR’s 2022 earnings has been revised 51.9% upward over the past 60 days.
Equinor, headquartered in Stavanger, Norway, delivered a 1.9% beat in Q1. EQNR shares have surged around 59.9% in a year.
Canadian Natural Resources: CNQ beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 17.6%, on average.
Canadian Natural is valued at around $78 billion. CNQ has seen its shares gain around 83.5% in a year.
Marathon Oil: Marathon Oil is valued at some $22.2 billion. The Zacks Consensus Estimate for MRO’s 2022 earnings has been revised 44.4% upward over the past 60 days.
Marathon Oil, headquartered in Houston, TX, has a trailing four-quarter earnings surprise of roughly 23%, on average. MRO shares have gained around 124.6% in a year.
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This is Why Patterson-UTI (PTEN) Holds Substantial Upside
The Oil/Energy space has continued to move higher this year after comfortably topping the S&P 500 leaderboard in 2021. It has generated a total return of more than 59.2% in 2022 so far compared with the S&P 500’s loss of 14%. Apart from a constructive demand picture, the sector is enjoying support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity. Naturally, there are some stocks that have been rocking since the start of the year and have strong earnings trends to back up the moves.
One such company is Patterson-UTI Energy (PTEN - Free Report) . Formed in 1978, Houston, TX-based PTEN is one of the largest onshore contract drillers in the United States and has a large fleet of pressure pumping equipment. It operates primarily in four segments: Contract Drilling (contributed 49% of the company’s 2021 revenue), Pressure Pumping (39%), Directional Drilling (8%), and Others (4%).
Lets discuss the reasons that make Patterson-UTI Energy an attractive pick:
Solid Rank and VGM Score
Patterson-UTI is a Zacks Rank #2 (Buy) stock in the Oil and Gas - Drilling industry, which carries a Zacks Industry Rank #79 — placing it in the top 31% of more than 250 Zacks industries. In addition to the favorable rank, PTEN enjoys a Zacks Value Style Score of C, Growth of A, and Momentum of A to help it round out with a VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best upside potential.
Estimate-Beating Recent Earnings
PTEN posted robust Q1 results on Apr 27, with revenues more than doubling and adjusted net loss 77% narrower. The company’s flagship Contract Drilling segment helped drive the growth, with sales ahead of the consensus mark. Patterson-UTI also continues to enjoy higher activity and pricing in its Pressure Pumping unit, with revenues and margins showing handsome gains.
Shares at 4-Year Highs
PTEN shares have been on the move higher, adding 121.7% year to date to four-year highs.
Image Source: Zacks Investment Research
However, they are yet to break out to new all-time highs. As we can see in the 10-year chart, the last peak in the shares was in 2014 before the fierce downturn in the energy sector, which lasted from 2014 to 2017. With the company experiencing the best market conditions in years, we believe the Patterson-UTI stock has enough firepower left to keep chugging along.
Image Source: Zacks Investment Research
Analyst Estimates Raised
PTEN’s earnings revisions have also trended in the right direction over the last 60 days, as analysts have consistently taken up their numbers. As a matter of fact, the Zacks Consensus Estimate for Patterson-UTI’s 2022 bottom line has flipped from a loss of 30 cents to a profit of 7 cents over the past 60 days, while next year’s number is a rise from a profit of 36 cent per share to $1.05.
Fundamental Strength
PTEN’s technologically advanced Apex rigs are the key to its success. PTEN’s proprietary design makes the rigs move faster than the conventional rigs, and drill quicker and more efficiently. Patterson-UTI’s acquisition of Pioneer Energy Services has boosted its scale and geographic presence. Following the transaction closure, Patterson-UTI possesses 166 super-spec rigs in the United States, with nearly 50% outfitted with alternative power sources to minimize emissions. In addition, this takeover expands Patterson-UTI’s geographic reach to foreign markets with the addition of eight rigs in Colombia, where Pioneer has served for the past 14 years with a well-recognized operations staff and set-up.
Bottom Line
Given this backdrop, now appears to be a solid time to consider buying Patterson-UTI. While there are some apprehensions that the company may have gotten too far ahead of itself, especially with the inflation-trigerred cost increases, the increasing demand and the tight supply of rigs should drive better pricing and longer-term gigs, and increase the contract drilling backlog moving forward. All these suggest strong long-term cash flows that should support higher price points for its shares.
Other Energy Stocks to Buy
Along with Patterson-UTI, investors interested in the energy sector might look at Equinor ASA (EQNR - Free Report) , Canadian Natural Resources (CNQ - Free Report) and Marathon Oil (MRO - Free Report) , each carrying a Zacks Rank #1 (Strong Buy), currently.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Equinor: Equinor is valued at some $119.9 billion. The Zacks Consensus Estimate for EQNR’s 2022 earnings has been revised 51.9% upward over the past 60 days.
Equinor, headquartered in Stavanger, Norway, delivered a 1.9% beat in Q1. EQNR shares have surged around 59.9% in a year.
Canadian Natural Resources: CNQ beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 17.6%, on average.
Canadian Natural is valued at around $78 billion. CNQ has seen its shares gain around 83.5% in a year.
Marathon Oil: Marathon Oil is valued at some $22.2 billion. The Zacks Consensus Estimate for MRO’s 2022 earnings has been revised 44.4% upward over the past 60 days.
Marathon Oil, headquartered in Houston, TX, has a trailing four-quarter earnings surprise of roughly 23%, on average. MRO shares have gained around 124.6% in a year.