Superior Drilling Downgraded By Wunderlich, Firm Sees $2 As Upside Point

In a report published Friday, Wunderlich analyst Jason A Wangler downgraded the rating on

from Buy to Hold, while reducing the price target from $4 to $2, on continued OFS weakness and the resultant delay in growth. Superior Drilling reported preliminary 2Q15 revenues of about $2.9 million, significantly down from the $4.1 million recorded in 1Q15 and short of the Wunderlich estimate of $4.1 million. The lower revenues are attributable to pricing pressures and lower-than-expected overall activity. Analyst Jason Wangler pointed out that, although the company's technologies had significant potential for growth in the oilfield, it had been "delayed/deferred given the tough OFS market." In the report Wunderlich noted, "The company's Drill-N-Ream is still showing good market acceptance but pricing pressures are pinching margins and cash flow." "…we find it encouraging that SDPI worked for four new customers and one new basin. With 58 monthly runs in 2Q15 versus 62 in 1Q15, the activity is holding up but pricing was down 13.5% from 1Q15 and likely washed out all of SDPI's EBITDA margins (which were 4% in 1Q15)," the report added. Superior Drilling is cutting R&D costs as its focus has shifted from R&D to product development with Drill N Ream out in the field and two new products, Strider and Orbit, out of the lab for testing in the field.