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What's in Store for Helmerich & Payne (HP) in Q1 Earnings?

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Helmerich & Payne, Inc. (HP - Free Report) is set to release fiscal first-quarter 2018 results before the opening bell on Jan 25.

In the preceding three-month period, the company delivered a positive earnings surprise of 38.1% on the back of higher drilling activities in the North American markets. Further, the company delivered an average positive earnings surprise of 12.93% in the last four quarters.

Let’s see how things are shaping up for this announcement.

Which Way Are Estimates Headed?

Let’s look at the estimate revision trend to get a clear picture of what analysts expect from the earnings release.

The Zacks Consensus Estimate of a loss of 14 cents for the quarter under review has been stable over the last seven days. It reflects a narrower loss of about 65.8% from the year-ago quarter.

Further, analysts polled by Zacks expect revenues of $538 million for the quarter, up 45.8% from the prior-year quarter.

Factors at Play

Prices of oil at the end of October to December-quarter 2017 were $60.46 per barrel, up about 19.6% sequentially amid tightening supplies, improving demand outlook and OPEC-deal extension talks. The drilling contractor is poised to benefit from recovering commodity prices.

Helmerich & Payne’s industry leading drilling fleet including its advanced FlexRig along with its term contracts with well-capitalized oil majors poise the company to report strong revenues. Consequently, the Zacks Consensus Estimate for the revenues of Helmerich & Payne’s largest segment — U.S. Land — is pegged at $453 million compared with $439.4 million in the prior quarter.

The International and Offshore segments are also expected to witness improvement in their revenues. The Zacks Consensus Estimate for Helmerich & Payne’s international and offshore segment revenues are pegged at $58 million and $33.2 million respectively, reflecting a sequential rise of 5.4% and 2.2%.

The company also has a solid balance sheet with impressive leverage and liquidity ratios giving Helmerich & Payne enough financial flexibility to take advantage of the recovering energy landscape.

However, declining margins remains a concern and is likely to offset the optimism surrounding the stock. The company’s average rig margins in the U.S. Land segment have been compressing considerably. Thought the fleet utilization has been improving, the firm’s margin in its the Land segment has plunged from over $17,000 in fiscal 2016 to around $8,000 in fiscal 2017. The trend is likely to continue in the coming period as well.

For the current quarter, the Zacks Consensus estimate for the average rig margin in the U.S. Land segment is pegged at $7,610 as against the reported level of $8,039 in the prior quarter. The declining margins are likely to dent the earnings of the most significant segment of the company.

Earnings Whispers

Our proven model does not conclusively show that Helmerich & Payne is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +11.62%. This is because the Most Accurate estimate stands at a loss of 13 cents while the Zacks Consensus Estimate is pegged at a loss of 14 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Zacks Rank: However, Helmerich & Payne’s Zacks Rank #4 (Sell), when combined with a positive ESP makes surprise prediction difficult. Please note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Energy Stocks with Favorable Combination

Though earnings beat looks uncertain for Helmerich & Payne, here are some companies from the same industry which, according to our model, have the right combination of elements to post earnings beat this quarter.

Noble Corp. (NE - Free Report) has an Earnings ESP of +0.55% and a Zacks Rank #3. The company is expected to release fourth-quarter earnings results on Feb 21. You can see the complete list of today’s Zacks #1 Rank stocks here.

ENSCO PLC (ESV - Free Report) has an Earnings ESP of +7.29% and a Zacks Rank #3. The company is expected to release fourth-quarter earnings numbers on Feb 26.

Nabors Industries Ltd. (NBR - Free Report) has an Earnings ESP of +1.73% and a Zacks Rank #3. The company is expected to release fourth-quarter earnings results on Feb 28.

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