Wunderlich Downgrades Patterson-UTI Energy To Hold As Shares Reach Price Target

Patterson-UTI Energy, Inc. PTEN reported strong 1Q16 results. Wunderlich’s Jason A. Wangler downgraded the rating for the company from Buy to Hold, while maintaining the price target at $20. The analyst cited the stock’s good performance as the reason for the revised rating.

Patterson-UTI Energy reported its 1Q EPS at -$0.47, better than the Wunderlich estimate of -$0.53 and the Street's -$0.54. The upside was driven by better-than-expected revenue and EBITDA, which was backed by cost controls, analyst Jason Wangler noted.

“All three segments at PTEN generated positive EBITDA margins despite the continual pricing pressures and reduced utilizations that have plagued the slow start to 2016,” Wangler wrote.

Drilling Activity Declines

The company’s rig count declined from 91 in 4Q15 to 74 in 1Q16. For April, the count is at 56 rigs. “This slide has essentially tracked the declines in the U.S. rig count and now PTEN expects to run an average of 54 rigs in 2Q16 as it seems activity is starting to stabilize,” the analyst mentioned.

Pressure Pumping Remains Challenging

Although the company has recorded profits, despite the tough pricing and utilization environments, the declines are expected to continue in 2Q16, with the rig count moving down.

Cash Position Improves

Patterson-UTI Energy increased its cash position significantly during 1Q16 to $187 million, and is likely to continue generating FCF going forward given its low spending levels, Wangler commented. He added, “This is a rarity in the OFS space right now and when coupled with the lowered dividend program should allow PTEN to build up a nice cash balance to reduce debt, repurchase shares or possibly be opportunistic in the M&A market when appropriate.”