Helmerich & Payne (HP) Q2 Earnings: What's In The Cards?

Contract drilling services provider Helmerich & Payne, Inc. (NYSE:HP) is set to release fiscal second-quarter 2017 results before the opening bell on Apr 27.

In the preceding three-month period, the company delivered a negative earnings surprise of 10.81%. Further, the company missed estimates in three of the last four quarters with an average negative surprise of 2.14%.

Let’s see how things are shaping up for this announcement.

Factors at play

Helmerich & Payne is a major land and offshore drilling contractor in the western hemisphere with the youngest but the most efficient drilling fleet. The company specializes in shallow to deep drilling in oil and gas-producing U.S. basins. It also drills oil and gas at international locations.

The fate of Helmerich & Payne is positively correlated with oil prices as the company is hugely dependent on the capital expenditure from the exploration and production sector. While oil prices were over $50 per barrel for the first two months of the quarter, it went bearish in March trading below the psychological mark of $50 per barrel. The volatility in gas prices reduced the spending of energy firms translating to less work and lower revenues for drillers like Helmerich & Payne. Crude ended the previous quarter 5.8% lower which could negatively affect the earnings of the company. This is also reflected in the price performance of the company which declined by around 14% in the last three months. Notably, the company’s fleet utilization is currently 31% which is pretty low. Even if oil prices improve and energy companies hike their spending, intense competition in the drilling space could weigh on Helmerich & Payne’s fortunes.

However, if we take a look at the financials of Helmerich & Payne, it looks quite impressive. The company boasts of a conservative balance sheet wherein debt makes up just around 10% of its total capital. The debt levels are not only low on an absolute basis but also on a relative basis; since many of its peers are hugely leveraged with debts accounting to around 50% of their total capital structure. Further, if we take a note of the company’s liquidity, the company has a current ratio of 5 which is way more than most of its peers. The rock solid balance sheet of the company provides it with a huge amount of financial flexibility and places it favorably among its peers. Moreover, the dividend history of the company is also quite stunning. The company has a record of hiking its dividend every year for 44 years, even in the recent downturn.

Earnings Whispers

Our proven model does not conclusively show that Helmerich & Payne will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -7.32%. This is because the Zacks Consensus Estimate is at a loss of 41 cents, while the Most Accurate estimate is pegged wider at a loss of 44 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Helmerich & Payne, under the Zacks categorized Oil and Gas Drilling industry, carries a Zacks Rank #3 which when combined with a negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

While earnings beat looks uncertain for Helmerich & Payne, here are some firms in the same industry that you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter.

Noble Corporation plc (NYSE:NE) is expected to release first-quarter earnings results on May 4. The company has an Earnings ESP of +10.53% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rowan Companies plc (NYSE:RDC) is expected to release first-quarter earnings results on May 2. The company has an Earnings ESP of +14.29% and a Zacks Rank #3.

Transocean Ltd. (NYSE:RIG) is expected to release first-quarter earnings results on May 3. The company has an Earnings ESP of +11.11% and a Zacks Rank #3.

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