UPDATE: RBC Capital Markets Upgrades Patterson-UTI Energy
In a report published Wednesday, RBC Capital Markets analyst Kurt Hallead upgraded Patterson-UTI Energy (NASDAQ: PTEN) to Outperform from Sector Perform, raising its price target to $29.00 from $25.00.
According to the report, PTEN's upgrade is based on their growing position in the strong Tier 1 land rig market. PTEN's EBITDA mix is expected to increase to 55% in 2015 from 18% in 2011. Higher quality EBITDA mix warrants modest multiple expansion from current levels, the analysts believe.
“These newbuilds will continue to improve their rig mix, which we think should lead to higher cash margins,” the report noted. “We forecast cash margins averaging $9.3k/day in '14 and $9.6k/day in '15, compared to $9.1k/day currently. We estimate cash margins for Tier 1 rigs will average ~$14k/day over the next two years.”
The report further asserted that 2014 forecast includes pressure pumping revenue increasing modestly as PTEN grows its percentage of revenue from 24-hour ops.
Some risks to PTEN include flat US rig count in 2014 keeps pricing and utilization depressed, lower AC rig utilization and underperformance of pressure pumping business segment.
PTEN closed Tuesday at $25.36 with shares up 1.32 percent.
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