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Patterson-UTI Energy (PTEN) Stock Still Offers Opportunities

Even as fears revolving around high inflation and slowing growth somewhat cloud the outlook for Oil/Energy, it has continued to be the best S&P 500 sector this year. The space has generated a total return of almost 31% in 2022 compared with the S&P 500’s loss of around 24%. Apart from a constructive fundamental picture, the sector is enjoying support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity.

Oil has pulled back from those lofty levels, with the conflict showing no sign of a quick resolution. Yet, the risk of dwindling inventory and the influential oil exporters’ group OPEC agreeing on a production curtailment means that the commodity has got enough reasons to stay elevated in the near-to-medium term.

Naturally, some stocks have been impressive since the start of the year. These also have strong earnings trends to back up their moves.

One such company is Patterson-UTI Energy PTEN. Formed in 1978, Houston, TX-based PTEN is one of the largest onshore contract drillers in the United States and has a large fleet of pressure pumping equipment. It operates primarily in four segments: Contract Drilling (contributed 49% of the company’s 2021 revenues), Pressure Pumping (39%), Directional Drilling (8%), and Others (4%).

Let’s discuss the reasons that make Patterson-UTI Energy an attractive pick:

Solid Rank and VGM Score

Patterson-UTI is a Zacks Rank #2 (Buy) stock in the Oil and Gas - Drilling industry, which carries a Zacks Industry Rank #15 — placing it in the top 6% of more than 250 Zacks industries. In addition to the favorable rank, PTEN enjoys a Zacks Value Style Score of B, Growth of A, and Momentum of A to help it round out with a VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best upside potential.

Estimate-Beating Recent Earnings

PTEN posted excellent Q2 results on Jul 28, with revenues more than doubling and adjusted net profit of 5 cents per share, turning around from last year’s losses, while trouncing the Zacks Consensus Estimate by 600%. The company’s flagship Contract Drilling segment helped drive the growth, with sales ahead of the consensus mark. Patterson-UTI also continues to enjoy higher activity and pricing in its Pressure Pumping unit, with revenues and margins showing handsome gains.

Current Pullback a Buying Opportunity

After PTEN shares bottomed out (around $1.60) during the start of the pandemic, they have turned it around in style. Patterson-UTI peaked in May at over $20 but has fallen to under $12 since then. Despite this drop, the stock is still up 42% on the year while the markets have gone lower. This powerful uptrend during a bear market indicates that investors should take advantage of the discounted levels and start looking at the name to see if it’s right for their portfolio. With the company experiencing the best market conditions in years, we believe that the PTEN stock has enough firepower left to keep chugging along.

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Zacks Investment Research

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Analyst Estimates Raised

PTEN’s earnings revisions have also trended in the right direction over the last 60 days, as analysts have consistently taken up their numbers. As a matter of fact, the Zacks Consensus Estimate for Patterson-UTI’s 2022 bottom line has jumped from a profit of 23 cents to a profit of 37 cents during this timeframe, while next year’s number is a rise from a profit of $1.36 per share to $1.63.

Fundamental Strength

PTEN’s technologically advanced Apex rigs are the key to its success. PTEN’s proprietary design makes the rigs move faster than the conventional rigs, and drill quicker and more efficiently. Patterson-UTI’s acquisition of Pioneer Energy Services has boosted its scale and geographic presence. Following the transaction closure, Patterson-UTI possesses 166 super-spec rigs in the United States, with nearly 50% outfitted with alternative power sources to minimize emissions. In addition, this takeover expands Patterson-UTI’s geographic reach to foreign markets with the addition of eight rigs in Colombia, where Pioneer has served for the past 14 years with a well-recognized operations staff and set-up.

Bottom Line

The current scenario make this a solid time to consider buying Patterson-UTI. While there are some apprehensions that the company may have gotten too far ahead of itself, especially with the inflation-triggered cost increases, the increasing demand and the tight supply of rigs should drive better pricing and longer-term contracts, and increase the contract-drilling backlog moving forward. All these suggest strong long-term cash flows that should support higher price points for its shares.

Other Energy Stocks to Buy

Along with Patterson_UTI, investors interested in the energy sector might look at Chesapeake Energy CHK, Murphy USA MUSA and Earthstone Energy ESTE, each sporting a Zacks Rank #1, currently.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Chesapeake Energy: Chesapeake is valued at some $11.1 billion. The Zacks Consensus Estimate for CHK’s 2022 earnings has been revised 24.6% upward over the past 60 days.

Chesapeake, headquartered in Oklahoma City, delivered a 30.2% beat in Q2. CHK shares have surged 56.9% in a year.

Murphy USA: Murphy USA is valued at some $6.3 billion. The Zacks Consensus Estimate for MUSA’s 2022 earnings has been revised 25.9% upward over the past 60 days.

Murphy USA, headquartered in El Dorado, AR, has a trailing four-quarter earnings surprise of 49%, on average. MUSA shares have gained 68.9% in a year.

Earthstone Energy: ESTE beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 27%, on average.

Earthstone Energy is valued at around $1.6 billion. ESTE has seen its shares gain 29.4% in a year.

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