FBR Capital Markets Upgrades Helmerich & Payne Inc

FBR Capital Markets upgraded Helmerich & Payne, Inc. HP to Outperform and named it a “Top Pick” in a report issued Tuesday.

At the macro level, Analysts Thomas Curran and Daniel Martins “believed the U.S. Tier 1 land drilling industry cyclically will likely have to suspend its push for, if not give back, recent pricing gains but enjoy enduring, high utilization.”

Curran also noted that “secularly, the industry should see operators continue to ink incremental newbuild contracts, albeit at a slower pace than 1H14, since operators still need another 200–300 units to cover "normalized" horizontal drilling demand.”

The case for HP includes “(1) high, enforceable revenue coverage; (2) the largest U.S. Tier 1 land fleet; (3) reattained a No. 1 share for newbuild awards; and (4) a net cash position of $355 million.”

The report concluded that “HP has become compelling by our primary valuation metrics” and is trading “at an EV- to-RV ratio of 0.92, versus prior five-year low, average, and high levels of 0.78, 1.08, and 1.43. As for EV/EBITDA, the stock is garnering 4.5x consensus 2015 EBITDA, compared with its prior five-year low, mean, and peak multiples on rolling 12-month forward consensus of 3.5, 5.8, and 8.9.”

Helmerich & Payne, Inc recently traded at $78.33, down 0.76 percent.