Patterson-UTI Energy, Inc. PTEN has seen its stock fall about 15 percent in reaction to its fourth quarter results, which prompted one Wall Street analyst to encourage investors buy the dip.
The Analyst
BMO Capital Markets' Daniel Boyd upgraded Patterson-UTI Energy's stock from Market Perform to Outperform with an unchanged $24 price target.
The Thesis
Patterson-UTI Energy reported earnings Feb. 8, which included a bigger-than-expected quarterly loss. The company's fundamentals are improving, and management's commentary of adding up to 200 rigs at year-end compared to 2017 implies the potential for upside to consensus estimates in the bottom half of 2018.
The earnings report wasn't accompanied with a dividend increase and capex expectations moved higher, Boyd said. While both of these factors were "disappointing," it didn't warrant such an excessive selloff. The company's free cash flow yield for 2018 is estimated to be 3.7 percent, which would rank it as one of the highest within the land-drilling space and could prompt a 50 percent dividend increase in the future.
Patterson-UTI Energy's stock is trading at a 5.4 times multiple on 2018E EBITDA, which implies a 20 percent discount to replacement value of currently working as opposed to peers like Helmerich & Payne, Inc. HP whose stock is trading at a premium of up to 40 percent.
Price Action
Shares of Patterson-UTI Energy were trading higher by 2 percent at $18.14.
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