Patterson-UTI Energy: Recent Weakness Reveals Relative Opportunity

Patterson-UTI Energy, Inc.PTENSean MeakimPatterson-UTI's stock as being attractive enough to warrant an upgrade from Neutral to Overweight with an unchanged $24 price target (see Meakim's track record here). Patterson-UTI's stock is currently trading at 5.5x the analyst's 2018 EBITDA, which makes it the cheapest among all land driller companies under his coverage. Investors may want to take advantage of this "dislocation in valuation" as the stock's poor performance isn't justified by the fundamentals. In fact, the company still boasts solid exposure to the best volume and pricing story in the North American frac industry.

In addition, Patterson-UTI's stock is trading at 0.6x EV/replacement value, which implies it is "getting little credit versus drilling plays," the analyst also noted. On top of that, when accounting for only the company's tier 1 rigs and frac equipment, the stock is still only valued at 0.74x EV/replacement value which adds another level of support at current levels.

Finally, looking forward to 2018 Patterson-UTI is expected to reactivate three more fleets in the bottom half of the year that will be accretive to its margins and push its utilization rate above 80 percent, the analyst added.

At last check, shares of Patterson-UTI were up 6.09 percent at $16.91.

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