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Patterson-UTI (PTEN) Rallies on MS Energy Acquisition Deal

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In a bid to enhance its directional drilling activities, onshore contract driller Patterson-UTI Energy, Inc. (PTEN - Free Report) recently inked a deal to acquire Multi-Shot, LLC. Oilfield service company Multi-Shot operates business as MS Energy Services. Post the announcement of the deal, JPMorgan Chase & Co. (JPM - Free Report) upgraded Patterson-UTI from neutral to overweight. Following the developments, shares of the company rose by 6.65% to eventually close at $17 on Sep 5.

The $215 million acquisition deal will be funded by a combination of cash and stock without the assumption of any debt of MS Energy. Patterson-UTI will make cash payment of $75 million and will offer 8.8 million shares of its common stock based on the closing price of $15.94 as on Sep 1. Subject to satisfactory closing conditions and regulatory approvals, the transaction is likely to close by the fourth quarter this year.

The acquisition of MS Energy bodes well for Patterson-UTI, given the compelling strategic rationale of the transaction. Apart from bolstering its scale and customer base, the buyout will help Patterson-UTI to enhance its presence in North American markets. MS Energy’s complimentary assets, skilled manpower and technological expertise are expected to strengthen the portfolio of Patterson-UTI, thus bolstering its future revenue growth opportunities. MS Energy’s standout technology and proprietary design will broaden the service offerings of Patterson-UTI and position it undertake unconventional drilling operations in the North American markets.

In a separate release, the company announced the appointment of C. Andrew Smith as the new CFO, replacing John Vollmer, effective Sep 8.

Zacks Rank and Key Picks

Headquartered in Houston, TX, Patterson-UTI is one of the largest North American land drilling contractors with a large, high-quality fleet of drilling rigs. The company’s technologically advanced ‘Apex’ rigs are the key to its success.

Patterson-UTI has lost 37% of its value year to date against 44% decline of its industry.

The company’s earnings surprise history is impressive. The company topped the Zacks Consensus Estimate for earnings in the last four quarters with an average of 8.27%. The company’s year-over-year earnings are expected to improve 58.2% in 2017. Patterson-UTI currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months..

Some better-ranked players in the broader energy space are Range Resources Corporation (RRC - Free Report) and TransCanada Corporation (TRP - Free Report) . Both these companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

Range Resources delivered an average positive earnings surprise of 51.82% in the trailing four quarters.

TransCanada delivered an average positive earnings surprise of 4.06% in the trailing four quarters.

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