With Saudi Arabia deciding to extend its voluntary crude oil production cut, strikes in a major LNG facility in Australia, and droughts in Panama, the outlook for demand for conventional energy is expected to remain tight in the foreseeable future. The consequent tailwinds could brighten the prospects of Superior Drilling Products, Inc. (SDPI), Helmerich & Payne, Inc. (HP), and Precision Drilling Corporation (PDS).
Consumers have been above and beyond to compensate for the years spent indoors trying to out-of-home experiences with virtual ones. As a result, air carriers are turning to bigger airplanes, even on shorter routes, and jumbo-jets, such as the Boeing 747 and the Airbus A380, are being brought back to help ease airport congestion and work around pilot shortages.
However, despite macroeconomic headwinds, supply has struggled to keep up with the demand. After Saudi Arabia-led OPEC+’s surprise announcement of a cut of more than a million barrels of output a day, in addition to a reduction of 2 million barrels a day agreed upon in October 2022, the heavyweight oil producer has decided to extend its production cut into September of this year.
In seven months, this has taken about 3% of the world’s petroleum production off the market. The redrawing of the global energy map and shifting geopolitical inclinations in the Middle East since the beginning of the conflict in Ukraine has been nothing short of a windfall for U.S. energy producers. The U.S. has “gone from (being) a very domestically focused market into an international powerhouse.”
American crude oil production is going through a purple patch and is set to have a record-breaking couple of years. The EIA forecasts that U.S. crude oil production will average 12.4 million bpd in 2023 and 12.8 million bpd in 2024. This has been countering OPEC+ production cuts and keeping prices in check.
With the surge in gas price in Europe in anticipation of a potential strike at an LNG facility in Australia and a Panama Canal pile-up due to drought placing further constraints on supply, both OPEC and the Paris-based International Energy Agency forecast a pickup in demand that could lead to supply tightness.
With newer and significant breakthroughs in the shale revolutions currently underway, which could translate into upside potential for U.S. energy producers as well as the businesses serving them, let’s take a closer look at the featured Energy - Drilling stocks, beginning with number 3.
Superior Drilling Products, Inc. (SDPI)
As a drilling and completion tool technology company, SDPI provides cost-effective solutions that increase production efficiencies in the oil and natural gas drilling industries. Additionally, the company manufactures and refurbishes Polycrystalline Diamond Compact (PDC) drill bits for oil field service providers.
On July 28, SDPI announced that it executed a new credit agreement with Vast Bank, National Association, which included a 5-year, $1.7 million term loan, a 2-year, $750,000 revolving credit line, and a program whereby the lender can purchase certain accounts receivable.
The proceeds from the receivables program were used to repay the full amount outstanding under the company’s existing credit agreement. The funds available through the term loan and the revolving line can be used for working capital and growth capital purposes.
During the fiscal 2023 second quarter that ended June 30, SDPI’s total revenue increased by 18.2% year-over-year to $5.37 million, while its adjusted EBITDA increased by 46% year-over-year to $1.21 million. Consequently, the company’s net income for the quarter came in at $323 thousand, or $0.01 per share, compared to a net loss of $57 thousand during the prior-year quarter.
Despite the decline in the U.S. rig count and additional costs due to patent infringement litigation, analysts expect SDPI’s revenue for the fiscal year 2023 to increase by 20.6% year-over-year to $23.03 million, in line with the company’s updated guidance. Street expects its EPS for the fiscal to double to $0.08.
SDPI’s stock has dipped 6.8% over the past six months to close the last trading session at $0.87.
SDPI’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SDPI has an A grade for Momentum and a grade B for Quality. It is ranked #3 of 15 stocks in the Energy - Drilling industry.
Click here to access additional SDPI ratings for Growth, Value, Stability, and Sentiment.
Helmerich & Payne, Inc. (HP)
HP designs, fabricates, and operates drilling rigs for oil and gas exploration and production companies. The company operates through three segments: North America Solutions; Offshore Gulf of Mexico; and International Solutions.
On August 31, HP paid its quarterly base cash dividend of $0.25 per share and a supplemental cash dividend of $0.235 per share to stockholders of record at the close of business on August 17. HP pays $1 annually as dividends, which translates to a yield of 2.47% at the current price.
For the fiscal 2023 third quarter that ended June 30, HP’s operating revenue increased by 31.6% year-over-year to $723.96 million, while its operating income from continuing operations increased more than four-fold to $148.74 million. Consequently, the company’s net income for the quarter came in at $95.29 million or $0.93 per share, compared to $164.04 million, or $0.16 in the year-ago period.
HP has an impressive earnings surprise history of surpassing consensus EPS in three of the trailing four quarters. For the fiscal year 2023, analysts expect HP’s revenue to increase by 39.6% year-over-year to $2.87 billion, while its EPS is expected to increase from $0.10 during the previous fiscal year to $4.24.
The stock has dipped 3.7% over the past six months to close the last trading session at $39.99.
HP has an overall rating of B, which translates to a Buy in our POWR Ratings system. The stock has an A grade for Momentum and B for Growth and Quality.
HP is ranked #2 of 15 stocks in the Energy – Drilling industry. Click here for additional ratings for HP's Value, Sentiment, and Stability.
Precision Drilling Corporation (PDS)
Headquartered in Calgary, Canada, PDS provides contract drilling, completion, and production services to oil, natural gas, and geothermal exploration and production firms. The company operates through two segments: Contract Drilling Services and Completion and Production Services.
During the fiscal 2023 second quarter that ended June 30, PDS’ revenue increased by 30.6% year-over-year to C$425.62 million ($314.51 million), while the adjusted EBITDA increased by 121.7% year-over-year to C$142.09 million ($105 million). As a result, the company’s net earnings came in at C$26.90 million ($19.88 million), or $1.63 per share, compared to a net loss of C$24.61 million ($18.19 million), or C$1.81 per share, during the previous-year quarter.
Analysts expect PDS’ revenue for the fiscal year 2023 to increase by 20.4% year-over-year to $1.45 billion, while its EPS is expected to come in at $10.77 compared to a loss of $1.88 during the previous fiscal. Both metrics are expected to keep increasing over the next two fiscals to come in at $1.66 billion and $11.98, respectively, by 2025. Moreover, the company has also impressed by surpassing consensus EPS estimates in three of the trailing four fiscals.
While the stock has dipped 1.6% over the past month, it has gained 15.7% over the past six months to close the last trading session at $65.92.
PDS’ fundamental strength is reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It also has an A grade for Momentum and a grade B for Growth, Value, Sentiment, and Quality.
Unsurprisingly, PDS occupies the top spot in the same industry. Click here to access all ratings of PDS.
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HP shares were trading at $41.84 per share on Friday afternoon, up $1.85 (+4.63%). Year-to-date, HP has declined -12.30%, versus a 18.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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