Patterson-UTI (PTEN) Down 5.6% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Patterson-UTI (PTEN). Shares have lost about 5.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Patterson-UTI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Patterson-UTI Reports Narrower Q2 Loss on Cost Control

Patterson-UTI Energy reported adjusted net loss per share of 56 cents, narrower than the Zacks Consensus Estimate of 58 cents. The outperformance reflects better than expected results from the contract drilling segment as lower costs helped prop up margins. In particular, average rig cost per day in its largest unit fell to $11,690 in the third quarter from $14,030 a year ago. 

However, the bottom line loss was wider than the year-earlier quarter's loss of 17 cents due to a free fall in U.S. drilling activity.

Revenues of $250.4 million beat the Zacks Consensus Estimate of $232 million on higher-than-expected sales from the contract drilling business. To be precise, revenues from the segment came in at $171.1 million, above the Zacks Consensus Estimate of $160 million.

Patterson-UTI’s sales though declined 62.9% from the year-ago quarter.

Segmental Performance

Contract Drilling: This segment’s revenues totaled $171.1 million, down 50.8% year over year. Meanwhile, the unit lost $30.7 million in the second quarter, compared to a profit of $16.5 million in the year-earlier quarter - plagued by fall in both the operating days (from 14,385 to 7,450) and the number of rigs operational (from 158 to 82).

On a positive note, average rig margin per day improved 10.9% year over year to $11,280. While average rig revenues per operating day decreased to $22,970 from $24,200 in the second quarter of 2019, it was more than offset by a 16.7% fall in average daily rig operating costs.

Pressure Pumping: Revenues of $59.5 million dropped 76.3% from the year-ago sales of $251 million as activity nosedived. Moreover, the segment’s operating loss widened to $68.6 million from $14.4 million in the second quarter of 2019.

Directional Drilling: The unit’s revenues totaled $11.7 million, down 76.6% year over year due to significantly lower rig count. As a result, the segment saw its operating loss worsen to $14.4 million as against the much narrower $5.3 million loss in the corresponding quarter of 2019.

Other Operations: Revenues came in at $8 million, 69.8% below the year-ago quarter figure of $26.4 million. Additionally, the unit incurred a wider quarterly loss of $10.4 million, as against the loss of $7.3 million recorded in year-ago quarter. The deterioration was mainly on account of curtailed operation.

Capital Expenditure & Financial Position

During the quarter, Patterson-UTI spent approximately $49.7 million on capital programs (as against $96.9 million in the second quarter of 2019). As of Jun 30, 2020, Patterson-UTI had $246.8 million in cash and cash equivalents and $967.1 million in long-term debt.

Guidance & Outlook

Patterson-UTI management said that its rig count has remained fairly steady of late and is unlikely to go down in the upcoming months.

For the third quarter of 2020, the company forecasts approximately $8,600 in average margin per operating day for the contract drilling unit. The onshore driller expects an average of 51 rigs to be operational under term contracts during the period and 38 for the next four quarters.

In the pressure pumping division, Patterson-UTI sees a slight uptick in fracturing jobs. This should lead to a 10% sequential improvement in revenues with expectations of positive cash flow. 

Moving on to the directional drilling unit, the company projects revenues of roughly $10 million and gross margin of approximately breakeven.

Finally, Patterson-UTI, which closed Canadian drilling operations during the quarter, still forecasts full-year capital expenditure to come in at approximately $140 million, 60% below the 2019 spending of $348 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 5.87% due to these changes.

VGM Scores

At this time, Patterson-UTI has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Patterson-UTI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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