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Patterson-UTI Energy (PTEN) Down 12.9% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Patterson-UTI Energy, Inc. (PTEN - Free Report) . Shares have lost about 12.9% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is PTEN due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Fourth-Quarter 2017 Results

Patterson-UTI Energy Inc. adjusted net loss per share of 10 cents, 2 cents wider than the Zacks Consensus Estimate on soaring expenses.

The company is already grappling with the aftermath of the recent explosion in a well in Quinton, OK, owned by Red Mountain Energy. The tragedy, one of the deadliest oil and gas related accidents in the last few years, occurred at one of Patterson-UTI's APEX 1500 rigs and killed five workers.

However, Patterson-UTI’s performance improved from the year-ago loss of 53 cents per share as shale drilling picked up amid rebounding oil prices.

Revenues of $787.3 million compared with $246.9 million in the year-ago quarter and were also higher than the Zacks Consensus Estimate of $760 million.

Segmental Performance

Contract Drilling: This segment’s revenues totaled $309.6 million, soaring 127.5% year over year.

Average revenues per operating day decreased to $20,950 from $21,640 in the fourth quarter of 2016. However, average direct costs per operating day came in at $12,940, down from $13,770 in the year-ago quarter. The segment was also boosted by a jump in both the operating days (from 6,288 to 14,776) and the number of rigs operational (from 68 to 161) on the back of resilience in Patterson-UTI’s operations amid an improving market.

Consequently, the segment recorded operating loss of $16.4 million – significantly narrower than the loss of $62.5 million incurred in the year-earlier quarter.

Pressure Pumping: Revenues of $406.7 million almost trebled from the year-ago sales of $105.6 million. Moreover, the segment reported a profit of $22.4 million, turning around from a loss of $40.1 million in the prior-year quarter. Pricing gains and higher activity led to the improvement.

Directional Drilling: Directional Drilling – Patterson-UTI’s newest unit following the acquisition of MS Directional – lost $21,000 on revenues of $45.6 million.

Other Operations: Revenues came in at $25.5 million compared to $5.2 million in the year-ago quarter. However, the rebound in commodity prices notwithstanding, the unit incurred a wider quarterly loss of $7.8 million, as against the loss of $1.1 million recorded in year-ago quarter. The deterioration was mainly on account of steep rise in direct operating costs – from $2.8 million to $20.9 million.

Direct Operating Costs

The company incurred direct operating expenses of $567.9 million, reflecting a 200% jump from $189.4 million reported in the year-ago quarter.

Capital Expenditure & Balance Sheet

During the quarter, Patterson-UTI spent approximately $237.2 million on capital programs (as against $39.3 million in the fourth quarter of 2016). Capital expenditure for the full-year 2017 came in at $567.1 million.

As of Dec 31, 2017, the company had $42.8 million in cash and $598.8 million in long-term debt.

Guidance & Outlook

Patterson-UTI management remains upbeat over its business following the recovery in land rig count and the recent bullishness in activity and pricing. In fact, the company sees 2018 as an exciting year for super-spec rigs. The company has 130 of them in its fleet with 98% under contract.

While Patterson-UTI sees an average rig count of 169 in the first quarter, it also expects average rig revenue per day to increase $300 sequentially, driven by favorable repricing of short-term contracts. At the same time, average rig operating cost per day is also expected to go up in the first quarter.

Patterson-UTI expects an average of 96 rigs to be operational under term contracts during the first quarter and 67 for the entire 2018.

In pressure pumping, the company expects first quarter revenues to fall slightly from the fourth quarter due to weather-related disruptions. Still, gross margins are likely to increase by approximately $5 million sequentially.

Directional Drilling revenues are expected to be roughly $47 million with a gross margin of 28%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to five lower.

VGM Scores

At this time, PTEN has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stocks has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, PTEN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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