It has been about a month since the last earnings report for Patterson-UTI (PTEN - Free Report) . Shares have lost about 0.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Patterson-UTI 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.
Patterson-UTI’s Q4 Loss Narrower Than Expected
Patterson-UTI reported fourth-quarter adjusted net loss per share of 4 cents, narrower than the Zacks Consensus Estimate of 14 cents. The better-than-expected results can be attributed to increase in day rates and rig margins, which in turn supported its contract drilling segment. The company’s performance also improved from the year-ago loss of 10 cents per share.
Nonetheless, revenues of $796 million missed the Zacks Consensus Estimate of $800 million. The top line was, however, a tad higher than the year-ago figure of $787 million.
Contract Drilling: This segment’s revenues totaled $387.5 million in the quarter, up from $309.6 million in the year-ago period. Overall average revenues per operating day increased to $22,970 from $20,950 in the fourth quarter of 2017. Moreover, average margin per operating day came in at $9,390, up from $8,010 in the year-ago quarter. The segment also gained from a rise in both operating days (from 14,776 to 16,869) and the number of operational rigs (from 161 to 183), owing to resilient operations of the company. As such, the segment recorded operating income of $26.9 million, turning around from $16.4 million loss incurred in the year-earlier quarter.
Pressure Pumping: Revenues of $319.7 million decreased from the year-ago sales of $406.6 million. While direct operating costs of the company reduced, Patterson-UTI incurred goodwill impairment charges of $121.4 million in the quarter under review. Hurt by impairment charges and receding margins, the unit recorded an operating loss of $121.8 million vis a vis operating income of $22.4 million in the year-ago quarter.
Directional Drilling: The segment recorded fourth-quarter 2018 revenues of $56.4 million compared with $45.6 million in the year-ago period. However, increasing costs lowered its margins to a huge extent. In addition, the segment posted an operating loss of $95 million compared with $21,000 in the corresponding quarter of 2017, owing to impairment charges incurred in the fourth quarter of 2018.
Other Operations: Revenues rose to $32.3 million from $25.5 million in the year-ago quarter. As such, quarterly loss narrowed to $4.5 million from $7.8 million in the year-ago quarter.
Stock Buyback & Dividends
During the fourth quarter, the company bought back 3.8 million shares for $50 million. In full-year 2018, Patterson-UTI repurchased $150 million shares. At the end of the year, the company had $150 million remaining under its share repurchase program. The board further decided to boost the buyback program to $250 million of its common stock.
The company has decided to pay a regular quarterly dividend of 4 cents (16 cents on an annualized basis) on Mar 21, 2019 to its shareholders of record as of Mar 7, 2019.
During the quarter, Patterson-UTI spent approximately $160.9 million on capital programs (versus $237.2 million in the fourth quarter of 2017). In the full year of 2018, capital expenditure amounted to $641.5 million.
As of Dec 31, 2018, the company had $245 million in cash and cash equivalents, and a long-term debt of $1,119.2 million.
With oil prices taking a hit since mid-October 2018 amid weakening demand, concerns about economic slowdown and trade tiff, many upstream players have been slashing their capex. As such, the drilling contractor has cut its spending levels for 2019 by around 27% and now expects capital outlay to stand at $465 million.
Nonetheless, the company expects average rig count of 174 in the first quarter of 2019 compared with 169 rigs in the corresponding period of 2018. Patterson-UTI expects around 122 rigs, on an average, to be operational in the first quarter under term contracts, and 78 within the next four quarters.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -17.22% due to these changes.
At this time, Patterson-UTI has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Patterson-UTI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.