Helmerich & Payne (HP): What's Expected In Q3 Earnings?

We expect Helmerich & Payne Inc. (NYSE:HP) to beat expectations when it reports fiscal third-quarter 2016 results on Jul 28. Last quarter, the company delivered a negative earnings surprise of 9.09%. We note that Helmerich & Payne outperformed the Zacks Consensus Estimate in two of the preceding four quarters, with an average positive surprise of 44.73%.

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

Why a Likely Positive Surprise?

Our proven model shows that Helmerich & Payne is likely to beat on earnings because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +9.52%. This is a meaningful indicator of a likely positive earnings surprise.

Zacks Rank: The company carries a Zacks Rank #3 (Hold) which, when combined with +9.52% ESP, makes us confident of an earnings beat.

Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings estimates. The Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

What's Driving the Better-Than-Expected Earnings?

Helmerich & Payne is a major land and offshore drilling contractor in the western hemisphere, having the youngest and most efficient drilling fleet. The company specializes in shallow to deep drilling in oil and gas-producing basins of the U.S. and in drilling for oil and gas in international locations.

The company’s technologically advanced FlexRigs are the key to its success, helping it to maintain relatively strong daily-rate margins even during market uncertainty. The company’s proprietary FlexRig design makes the rigs move faster than conventional rigs, drill quicker and more efficiently, and allows for a safer operating environment.

As such, these are better suited for the new requirements of the exploration business and, therefore, command higher dayrates and utilization than rigs from other land drillers. In fact, the company projected a slight improvement in average rig margin per day.

It is to be noted that through the quarter, oil price improved significantly from mid-February when West Texas Intermediate (WTI) crude fell to a 12-year low mark of $26.05 per barrel. Moreover, last month, oil prices settled above the psychologically important $50 per barrel level for the first time in more than 10 months.

Since Helmerich & Payne’s business is positively correlated to crude prices, an improving black-gold should come as a blessing for the company.

Other Stocks to Consider

Other companies from the energy space that, according to our model, have the right combination of elements to post an earnings beat this quarter include:

Anadarko Petroleum Corp. (NYSE:APC) has an Earnings ESP of +1.30% and a Zacks Rank #2 (Buy). The company is likely to release earnings results on July 26.

Legacy Reserves LP (NASDAQ:LGCY) has an Earnings ESP of +31.58% and a Zacks Rank #1 (Strong Buy). The partnership is expected to release earnings results on Aug 3.

Pioneer Natural Resources Co. (NYSE:PXD) has an Earnings ESP of +19.44% and a Zacks Rank #2. The company is anticipated to release earnings on July 27.