A month has gone by since the last earnings report for Patterson-UTI (PTEN Quick QuotePTEN - Free Report) . Shares have added about 22.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Patterson-UTI due for a pullback? 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 catalysts.

Patterson-UTI Reports Narrower Q1 Loss on Solid Contract Drilling

Patterson-UTI Energy reported first-quarter 2020 net loss of 45 cents per share, narrower than the Zacks Consensus Estimate of a loss of 46 cents, attributable to better-than-expected sales from the Contract Drilling unit. Also, revenues from the segment came in at $267.4 million, above the Zacks Consensus Estimate of $258 million.

However, the loss was wider than the year-ago loss of 14 cents. This downside is due to weak U.S. drilling activity and higher total costs and expenses.

Although total revenues of $445.93 million beat the Zacks Consensus Estimate of $438 million, the top line plunged 36.7% year over year.

Poison Pill Adoption

In a separate press release, Patterson-UTI announced its adoption of a limited-duration shareholder rights agreement and declared a dividend of one preferred share for each outstanding share of its common stock payable May 8, 2020 to its shareholders of record. Per the company, the rights pact was followed as its present share value does not mirror its inherent long-term worth, thanks to the coronavirus pandemic that upended most sectors until now. In fact, shares have been trending 72.5% down year to date.

Management confirmed that the rights plan will be exercised when an investor accumulated more than 10% of a stock, contingent upon customary conditions. The plan will provide stockholders with the right to purchase shares at a discounted price, which will dilute the stock and prevent a hostile takeover.

Segmental Performance

Contract Drilling: This segment’s revenues totaled $267.4 million, down 28.2% year over year. Meanwhile, the unit lost $404 million in the first quarter against a profit of $21.2 million in the year-earlier period.

While average rig revenues per operating day increased to $23,800 from $23,590 in the first quarter of 2019, it was more than offset by a 4.8% rise in average daily rig operating costs. Consequently, average rig margin per day contracted 10% year over year to $9,250.

The unit was also plagued by a fall in both operating days (from 11,291 to 11,235) and the number of rigs operational (from 175 to 123).

Pressure Pumping: Revenues of $125.1 million dropped 49.5% from the year-ago sales of $247.6 million as activity decreased. Moreover, the segment’s operating loss widened to $35.5 million from $18.8 million in the first quarter of 2019 on lower revenues and margins.

Directional Drilling: The unit’s revenues totaled $34.5 million, down 34.8% year over year. Moreover, the segment incurred an operating loss of $10.6 million compared with $5.6 million loss in the corresponding quarter of 2019. The results were hurt by higher development costs.

Other Operations: Revenues came in at $19 million, 39.2% below the year-ago figure of $31.2 million. Moreover, the unit incurred a quarterly loss of $18.7 million, wider than the loss of $5.2 million in the year-ago quarter. This deterioration was mainly on account of lower revenues and elevated impairment charges.

Capital Expenditure & Financial Position

During the quarter, Patterson-UTI spent $71.9 million on capital programs (compared with $118.3 million in the first quarter of 2019). As of Mar 31, 2020, the company had $152.2 million in cash and cash equivalents and $966.8 million in long-term debt.

Guidance & Outlook

Drilling and completion activities are expected to be under pressure for the time being with upstream energy companies choosing to remain conservative with their investment budgets due to the tumbling oil prices. Management warned that drilling activity may decline 60% in 2020. As a response, the company expects to run just four frack fleets in the second quarter, indicating a decline from the earlier-projection of 10. By Jun 30, this oilfield service provider will likely lower its rig count to 70, falling steeply from an average of 123 at the first-quarter end.

To cope with the current market volatility, Patterson-UTI is taking strategic measures to trim its expenses.

For the second quarter of 2020, the company anticipates to record a total of $50 million of charges associated with the savings.

The average rig count for the period is expected to drop by one-third of the first-quarter average. Depending on the currently active contracts, the company estimates an average of 71 rigs operating under term contracts in the second quarter as well as an average of 50 rigs under term contracts during the four quarters ending Mar 31, 2021.  

In pressure pumping, Patterson-UTI expects the unit to make indirect support cost savings of around $65 million annually. The company’s directional drilling segment projects to save support costs worth $10 million annually.

Meanwhile, the board lowered the company’s regular quarterly dividend by 50% to 2 cents per share. The dividend is payable Jun 18 to its shareholders of record as of Jun 4, 2020. Further, Patterson-UTI, which halted share repurchases in the first quarter, is not planning any more buybacks currently.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Patterson-UTI has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Patterson-UTI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.