The 4 Leading U.S. Land Drilling Services Stocks Ranked By Expected Return

The land drilling services companies have been severely beaten down by the downturn in the oil market over the past four years. As the price of oil began to plunge in 2014, the onshore oil producers drastically reduced their production activity, which greatly impacted the oilfield service providers.

Fortunately for these companies, the efforts of OPEC and Russia have largely eliminated the supply glut from the oil market. In turn, the price of oil has enjoyed an impressive rally since last summer and is now trading at a three-and-a-half-year high. As a result, the U.S. oil production has reached new all-time highs this year and is expected by EIA to continue to post new records next year. The number of active rigs has more than doubled since it bottomed in 2016. These developments bode well for the domestic land drilling service providers.

In this article, we will compare the expected 5-year returns of the four leading U.S. land drilling services companies, namely Helmerich & Payne (HP), Patterson-UTI Energy (PTEN), Precision Drilling (PDS) and Nabors Industries (NBR). Helmerich & Payne, Patterson-UTI, and Nabors pay dividends to shareholders and can be found on our list of 294 dividend-paying energy stocks.

This article will review the major drilling service companies’ expected book value growth and total return potential over the next five years.

U.S. Land Drilling Stock #4: Helmerich & Payne

Helmerich & Payne provides contract drilling services primarily to onshore U.S. producers of oil and natural gas. It is the market leader in the domestic market, with a market cap of $7.0 billion.

Thanks to the recovery in the oil market since last summer, Helmerich & Payne has posted the largest increase in its domestic rig activity in its history, with its rig count rising from 95 in the beginning of the last fiscal year to 197 at the end of the year. The increase in the rig count has continued this year, as shown in the chart below.

HP Fleet


Source: Investor Presentation

Moreover, the company upgraded 30 rigs to super-spec rigs during the last two quarters. As this market is much tighter than the broad market of rigs, the company will benefit from the higher day rates for this type of rigs. Notably, almost all its super-spec rigs are currently utilized, while the company has a greater than 40% market share in this rig category.

In the 2018 second quarter, Helmerich & Payne grew revenue by 43%, and narrowed its net loss per share, from -$0.45 to -$0.12. Thanks to the strong momentum in its business, the company is expected to make a marginal profit of $0.11 per share this year, after two consecutive years of losses. This is in sharp contrast to its peers, which are expected to continue to post losses this year.

Helmerich & Payne is currently trading at a price-to-book value ratio of 1.55, which is very close to its historical average of 1.51. As the stock can be reasonably expected to trade around its average valuation level in five years from now, it is likely to incur a 0.5% annualized drag due to contraction of its valuation multiple.

The book value per share currently stands at $41.30. While the company is expected to return to profitability from this year, it currently distributes an annual dividend of $2.80 per share, which is much higher than its expected earnings of this and next year.

1 2 3 4
View single page >> |

Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

However, the publishers of Sure ...

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.