Bear of the Day: Precision Drilling Corp. (PDS)
Precision Drilling Corp. PDS is an oilfield services company that offers contract drilling, well servicing, and strategic support in North America and internationally. The company provides land drilling, directional drilling, distribution of oilfield supplies, as well as camp and catering services.
In addition, the company offers service rigs for well completion and workover services, wastewater treatment services, well control equipment, and wellsite accommodations. Precision Drilling is headquartered in Calgary, Canada and serves companies in the oil, natural gas, and geothermal industries.
The Zacks Rundown
Precision Drilling, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Oil and Gas – Drilling industry group. This industry ranks in the bottom 18% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the past several months:
Image Source: Zacks Investment Research
Stocks in the bottom tiers of industries can often be potential candidates for short positions. While individual stocks have the ability to outperform even when they are part of a lackluster industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Despite a rebound in stocks with the Dow and S&P 500 hitting new all-time highs, PDS shares have not been participating lately. The stock has experienced considerable volatility over the past year.
Past Earnings Misses and Deteriorating Outlook
PDS has fallen short of earnings estimates in two of the last four quarters. Heading into today’s quarterly release, the company had delivered a trailing four-quarter average earnings miss of -13.9%. Note that stocks can experience heightened volatility (in both directions) surrounding earnings announcements.
The company has been on the receiving end of negative earnings estimate revisions as of late. As we look ahead to the first quarter, analysts have decreased EPS estimates by 7.57% in the past 60 days. The Q1 Zacks Consensus Estimate stands at $2.93/share, reflecting negative growth of -28.9% relative to the year-ago period.
Image Source: Zacks Investment Research
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
As illustrated below, PDS stock has witnessed considerable volatility, all while the general market reaches new heights. Notice how shares have swung above and below the widely-followed moving averages signaled by the blue and red lines. The stock is not showing much in the way of a clear direction, making it very difficult to profit from the long side.
Image Source: StockCharts
Precision Drilling would have to make a surprising move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. PDS shares have fallen more than 30% since the S&P 500 bottomed out back in late 2022.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to hit new highs anytime soon. The fact that PDS stock is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
Highlighted underperformance bodes well for the bears. Potential investors may want to consider including this stock as part of a short or hedge strategy. Bulls will want to steer clear of PDS shares until the situation shows major signs of improvement.
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Precision Drilling Corporation (PDS) : Free Stock Analysis Report
