Impact Of Slower US Land Rig Growth On Helmerich & Payne, Analyst Downgrades Stock

RBC Capital Markets analyst Keith Mackey downgraded Helmerich & Payne Inc HP to Sector Perform from Outperform at a decreased price target of $45 from $53.

The analyst lowered HP's rating and price target in tandem with their reduced forecast for the U.S. land rig count.

The analyst reduced the U.S. land rig count forecast to 674 (vs. 741 earlier) for 2023 and 674 (from 793 previously) for 2024, expecting industry rig counts to bottom out in H2 2023 and rise gradually in 2024.

Consequently, the analyst expects fewer growth and margin expansion catalysts for HP.

Given the majority of HP's earnings are derived from U.S. Onshore land rigs, Mackey reduced the estimate for adjusted EBITDA to $954 million (from $969 million, in line with the consensus) for 2023 and $866 million (from $971 million, 11% below consensus) for 2024. 

The analyst expects EBITDA margins to peak at 32.8% in 2023 on lower E&P urgency to reserve high-quality rigs leading to static rig pricing in the range of mid-$30k/day. 

However, the analyst expects margins to decline by around 110bps in 2024, slightly higher than its peer average of 67bps.

Nevertheless, Mackey believes HP is a high-quality land driller having a strong balance sheet and a higher proportion of super spec rigs in its fleet.

Price Action: HP shares are trading lower by 1.02% at $35.84 on the last check Monday.