Citi Raises Estimates On Patterson UTI-Eneregy

Patterson UTI-Energy PTEN delivered strong operating earnings in both drilling and pressure pumping, solidly beating Citi's estimates of EPS, $0.21 actual/$0.17 estimate, revenues of $379mm actual/$352mm estimate, and EBITDA of $138mm actual/$125mm estimate. The fundamental strength in both drilling and pressure pumping reflected in these results is impressive. The company has delivered on its extensive geographical footprint and basin positioning. For example, PTEN has long been the dominant drilling contractor in the Permian's oily as well as liquids-rich formations. Its pressure pumping expansion was also well-timed. However, we believe investors have had ample time to price in the implications of the North American recovery, and the stock has risen by 51% to $19.53 from $12.75 on June 29. Despite aggressive Apex rig construction and SCR rig refurbishments, PTEN still has significant exposure to mechanical/lower-spec assets, and the industry is adding fracturing equipment that Citi believes could bring about a balance of supply and demand for pressure pumping services by late 2011. Citi has a Hold rating with a $20 PT on PTEN PTEN closed Monday at $19.53