UPDATE: RBC Capital Markets Upgrades Helmerich & Payne

In a report published Wednesday, RBC Capital Markets Kurt Hallead upgraded Helmerich & Payne HP to Outperform from Sector Perform, raising its price target from $86.00 to $94.00. According to the report, the upgrade is based on the company's dominant market position in the growing Tier 1 rig market. Tier 1 rig utilization has improved from ~85% to ~94% in the past year, which could lead to pricing improvement on newbuild deliveries. “While the overall rig count is down roughly 20 rigs YTD, the industry active Tier 1 rig count has increased by ~100 rigs and HP's rig count has increased by ~20,” the report noted. “The mix shift continues to be driven by a higher percentage of horizontal pad drilling. The company now has only 13 idle Tier 1 rigs remaining with 7 of those rigs already committed to start drilling shortly. This high utilization for Tier 1 rigs has led to some early signs of pricing power for certain assets.” The report further asserted recent industry datapoints indicating spot market pricing may be improving. HP indicated that spot market pricing is on average 5-10% below their contracted dayrates. If the spot market rigs were to close the pricing gap with the contracted fleet during 2014, it is believed that this could add an additional $0.20-0.25 to our FY14 EPS estimate. HP closed Tuesday at $83.58.