Soaring demand for oil and gas amid the rebound of the Chinese economy and an increase in the active rig count could keep the energy drilling industry buoyed in the foreseeable future.
Given the industry tailwinds, energy drilling stocks Patterson-UTI Energy, Inc. (PTEN), Nabors Industries Ltd. (NBR), and Precision Drilling Corporation (PDS) could be wise investments now.
A toxic blend of geopolitical turmoil, inflationary pressure, increasing interest rates, and rising fears of an economic slump hampered the growth of energy drilling activities last year.
However, despite broad economic concerns and geopolitical instability, the energy industry fundamentals continue to support drilling activity for oil and natural gas. Oil and gas prices are projected to be propelled by reemerged oil demand growth in China, production cuts by OPEC+, and years of underinvestment and capital discipline by producers, which are limiting supply growth.
Natural gas, a lower-carbon energy source, is becoming increasingly favorable as major economies worldwide stress the importance of sustainability, decarbonization, and energy security. Amid soaring demand for Liquified Natural Gas (LNG) exports and the next wave of North America LNG projects expected to begin coming online in 2025 (including LNG Canada), experts anticipate a sustained period of upraised natural gas drilling activity.
Moreover, oil and gas operators worldwide report plans to increase the number of wells drilled in 2023 by 14.9% in response to growing demand and improved oil prices. Such increases reflect a globally coordinated upcycle in drilling not witnessed in many years.
Given the industry tailwinds, fundamentally strong stocks PTEN, NBR, and PDS, witnessing robust growth, could be solid buys now.
Patterson-UTI Energy, Inc. (PTEN)
PTEN provides onshore contract drilling services to oil and natural gas operators in the United States and globally. The company operates through the broad segments of Contract Drilling Services; Pressure Pumping Services; and Directional Drilling Services.
In terms of forward EV/Sales, PTEN is trading at 0.96x, 48.2% lower than the industry average of 1.86x. Also, its forward EV/EBITDA and Price/Sales multiples of 3.08 and 0.74 are 39% and 40.4% lower than the industry averages of 5.05x and 1.24x, respectively.
PTEN’s revenue has grown at 9.8% and 0.5% CAGRs over the past three years and five years, respectively. Moreover, its EBITDA has grown at 21.9% CAGR over the past three years.
PTEN had declared a quarterly dividend on its common stock of $0.08 per share, payable to the shareholders on June 15, 2023. PTEN pays a $0.32 per share dividend annually, translating to a 2.86% yield on the current share price. Its four-year dividend yield is 1.85%. The company’s dividend payouts have grown at CAGRs of 14.5% and 24.6% over the past three and five years, respectively.
For its fiscal first quarter that ended March 31, 2023, PTEN’s revenues increased 55.4% year-over-year to $791.80 million. Its operating income came in at $125.96 million compared to an operating loss of $18.88 million in the year-ago quarter.
Moreover, its net income and net income per common share came in at $99.68 million and $0.46 for the quarter that ended March 31, 2023, compared to the net loss and net loss per share of $28.78 million and $0.13 in the previous year quarter, respectively.
Analysts expect PTEN’s EPS to grow 335.3% year-over-year to $0.44 for the fiscal second quarter ending June 2023. Its revenue for the same quarter is expected to increase 26.8% year-over-year to $789.28 million. The company surpassed revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Over the past five days, the stock has declined 4.1% to close its last trading session at $11.19.
PTEN’s POWR Ratings reflect this strong outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
PTEN has an A grade for Momentum and a B for Growth, Value, and Quality. In the 15-stock Energy – Drilling industry, it is ranked #2.
Click here to see the additional POWR Ratings for PTEN (Stability and Sentiment).
Nabors Industries Ltd. (NBR)
Based in Hamilton, Bermuda, NBR provides drilling and drilling-related services for land-based and offshore oil and natural gas wells in the United States and internationally. The company operates through U.S. Drilling, International Drilling, Drilling Solutions, and Rig Technologies.
In terms of forward EV/Sales, NBR is trading at 1.22x, 34.2% lower than the industry average of 1.86x. Also, its forward EV/EBITDA and Price/Sales multiples of 3.90 and 0.29 are 22.7% and 76.3% lower compared to the industry averages of 5.05x and 1.24x, respectively.
NBR’s revenue has grown at 1% CAGR over the past five years. Moreover, its EBITDA has grown at 1.5% CAGR over the past three years.
Anthony G. Petrello, NBR’s Chairman, CEO, and President, commented, "Our first quarter results demonstrate the strength of our strategy. Our commitments to value-based rig pricing and disciplined capital spending, coupled with continued focus on growth of our advanced performance solutions and international operations, position us to make further progress on our financial goals in 2023."
For the fiscal first quarter ending March 31, 2023, NBR’s total revenues and other income stood at $789.01 million, up 38.7% year-over-year. For the same quarter, its net income attributable to NBR stood at $49.22 million compared to a net loss of $184.50 million in the prior year quarter. Moreover, its earnings per share came in at $4.11 compared to losses per share of $22.51 in the year-ago quarter that ended March 31, 2022.
Furthermore, its adjusted cash flow for the fiscal first quarter that ended March 31, 2023, stood at $37.30 million compared to a negative $39.23 million for the year-ago quarter that ended March 31, 2022.
For fiscal 2023, the company expects its adjusted free cash flow of approximately $400 million.
Street expects NBR’s revenue for the fiscal second quarter ending June 2023 to increase 22.9% year-over-year to $776.62 million. Its EPS for the same quarter is expected to come to $2.67. Also, the company surpassed revenue estimates in each of the trailing four quarters.
The stock lost 1.9% intraday to close the last trading session at $97.84.
NBR has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Growth and Value. Within the same industry, it is ranked #4.
Beyond what we have stated above, we have also given NBR ratings for Stability, Sentiment, and Quality here.
Precision Drilling Corporation (PDS)
Based in Canada, PDS provides onshore drilling, completion, and production services primarily to oil and natural gas and geothermal exploration and production companies in North America and the Middle East. The company operates through two segments: Contract Drilling Services; and Completion and Production Services.
In terms of forward EV/Sales, PDS is trading at 1.03x, 44.9% lower than the industry average of 1.86x. Also, its forward EV/EBITDA and Price/Sales multiples of 3.14 and 0.44 are 37.9% and 64.2% lower than the industry averages of 5.05x and 1.24x, respectively.
PDS’ revenue has grown at 7.1% and 6.2% CAGRs over the past three years and five years, respectively. Moreover, its EBITDA has grown at 8.8% CAGR over the past three years.
For the fiscal first quarter that ended March 31, 2023, PDS’ revenue increased 59% year-over-year to CAD558.61 million ($412.11 million). Its adjusted EBITDA rose 451.4% from the year-ago value to CAD203.22 million ($149.92 million). Net earnings came in at CAD95.83 million ($70.70 million) and CAD5.57 per share, compared to a net loss of CAD43.84 million ($32.34 million) and CAD3.25 per share in the prior-year quarter.
Street expects PDS’ revenue and EPS for the fiscal third quarter (ending September 2023) to increase 22.1% and 87.3% year-over-year to $386.66 million and $2.80, respectively. Also, the company surpassed revenue estimates in each of the trailing four quarters.
The stock plunged 2.5% intraday to close the last trading session at $48.49.
It’s no surprise that PDS has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Growth and Value. Within the same industry, it is ranked first.
In addition to the POWR Ratings we stated above, we have given PDS ratings for Stability, Sentiment, and Quality. Get all PDS ratings here.
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PTEN shares were trading at $10.56 per share on Tuesday afternoon, down $0.63 (-5.63%). Year-to-date, PTEN has declined -36.92%, versus a 7.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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