Helmerich & Payne (NYSE:HP) and other land drillers are being viewed as negative by a number of investors, but Global Hunter says they're wrong, and have boosted their EPS estimates for 2011/2012 far above consensus.
Global says, "Negative investor sentiment towards the land drillers has proven to be incorrect, yet again, with the group outperforming the OSX by 500 bps and the overall market by 455 bps yesterday. We think this trend continues, similar to the run in Q4 2010, believing the consensus sell-side estimate to be short 20-30% in most cases for the group. Momentum in the high service intensive plays is unlikely to cease in 2011 or 2012 and the major public drillers should continue to take share as legacy equipment is displaced. No driller is in better position to capitalize on this than HP given its fiscally sound operator base (highest in the group at ~85% of active rig count), under-levered balance sheet and strong cash flows. Ramping up production to three rigs per month suggests it likely delivers more than 50 rigs through 2012. Annualizing last quarter's results and the 2c per share each newbuild adds suggests greater than $5 in earnings power. Despite yesterday's 9.5% move we think the stock has another 20%+ to go."
"We are increasing our fiscal 2011 and 2012 EPS estimates to $4.09 and $5.15 from $3.45 and $4.05, respectively (note consensus as of yesterday was $3.33 and $3.55)."
Global reiterates an "Accumulate" on Helmerich & Payne (HP), which closed Friday at $56.37, down $0.37, or 0.65 percent. Global raised their price target on Helmerich from $62 to $70.
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