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Why Is Patterson-UTI (PTEN) Up 45.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Patterson-UTI (PTEN). Shares have added about 45.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Patterson-UTI due for a pullback? 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 drivers.

Patterson UTI Posts Narrower-Than-Expected Q3 Loss

Patterson UTIreported adjusted net loss per share of 60 cents, narrower than the Zacks Consensus Estimate of 61 cents. The outperformance reflects better-than-expected sales from the contract drilling segment.  To be precise, revenues from the segment came in at $115.1 million, above the Zacks Consensus Estimate of $105 million.

However, the loss was wider than the year-earlier quarter's bottom line of 27 cents due to lower contribution from pressure pumping and directional drilling segments.

Revenues of $207.14 million beat the Zacks Consensus Estimate of $199 million. Patterson-UTI’s sales, however, declined 65.4% from the year-ago quarter.

Segmental Performance

Contract Drilling: This segment’s revenues totaled $115.1 million, down 63.7% year over year. Meanwhile, the unit lost $47.2 million in the third quarter, narrower than the year-ago loss of $169.5 million in the year-earlier quarter, plagued by a fall in both the operating days (from 13,081 to 5,499) and the number of rigs operational (from 142 to 60).

On a positive note, average rig margin per day improved 3.88% year over year to $10,170.

Pressure Pumping: Revenues of $72 million dropped 65.5% from the year-ago sales of $208.6 million. However, the segment’s operating loss narrowed to $30.9 million from $42.9 million in the third quarter of 2019, attributable to improved activity levels.

Directional Drilling: The unit’s revenues totaled $11.7 million, down 78.2% year over year. However, the segment’s operating loss narrowed to $9.9 million from $32.5 million loss in the corresponding quarter of 2019 as a result of increase in activity and market share gains.

Other Operations: Revenues came in at $9.8 million, 61.8% below the year-ago quarter’s $25.7 million. Additionally, the unit incurred a narrower quarterly loss of $6.4 million from $39.2 million loss recorded in the year-ago quarter.

Capital Expenditure & Financial Position

During the quarter, Patterson-UTI spent $13.4 million on capital programs (compared with $68 million in the third quarter of 2019). As of Sep 30, 2020, Patterson-UTI had $303.7 million in cash and cash equivalents and $967.4 million in long-term debt.

Guidance & Outlook

Patterson-UTI anticipates its fourth quarter rig count to average 61 rigs with a lower proportion of idle but contracted rigs as customers reactivate rigs during the fourth quarter.  Further, the company projects rig count at the end of 2020 to be 63 rigs, 10% of which will be idle but contracted.

For the fourth quarter of 2020, the onshore driller expects 43 rigs, on average, to be operational under term contracts during the period and 35 for the next four quarters.

Average rig margin per day is expected to be approximately $7,500 per day in the fourth quarter.

Per Andy Hendricks, Patterson-UTI's CEO, "Based on our customer engagement, we expect activity will continue to improve through at least the first quarter of 2021.  Assuming commodity prices remain around current levels, we expect our profitability will be at or near an inflection point in the fourth quarter and move higher in early-2021."

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Patterson-UTI has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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