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Key Factors to Impact Helmerich & Payne's (HP) Q2 Earnings

Nilanjan Choudhury

Helmerich & Payne, Inc. HP is scheduled to release fiscal second-quarter 2019 results before the opening bell on Thursday, Apr 25. The current Zacks Consensus Estimate for the quarter under review is a profit of 38 cents per share on revenues of $714 million.

In the preceding three-month period, the Tulsa, OK-based contract driller beat the consensus mark by 14.3% on better-than-expected revenues from the U.S. Land business along with greater-than anticipated profits from the International Land segment.

As far as earnings surprises are concerned, the drilling rig provider has a good record, having met/gone past the Zacks Consensus Estimate thrice in the last four reports. This is depicted in the graph below:

Helmerich & Payne, Inc. Price and EPS Surprise

 

Helmerich & Payne, Inc. Price and EPS Surprise | Helmerich & Payne, Inc. Quote

Investors are keeping their fingers crossed and hoping that the company can surpass earnings estimate this time around too. However, our model indicates that Helmerich & Payne might not beat on earnings in the to-be-reported quarter.

Let’s delve deeper and find out the factors impacting the results.

Factors to Consider This Quarter

Helmerich & Payne's ‘U.S. Land’ segment — which represents 90% of its total fleet and makes up around 84% of the oilfield service provider’s revenues — could post lukewarm results in the upcoming quarter. This would jeopardize Helmerich & Payne’s chances of notching up a quarterly beat.

While demand for Helmerich & Payne’s super-spec FlexRigs remain strong (especially in the prolific Permian Basin where the company has a market-leading share), activity in the domestic onshore drilling sector is in the midst of a slowdown. The challenging environment is unlikely to improve meaningfully over the next few quarters, which would weigh on revenues.

With fundamentals pointing to a softer market, the Zacks Consensus Estimate for operating revenues at the company’s largest segment in fiscal second quarter of 2019 is $606 million, up from $483 million a year earlier but lower than last quarter’s $624 million. The sequential decline could also be attributed to fewer average rig count following the release of some spot rigs.  

However, firm pricing and utilization for the super-spec FlexRigs fleet should result in an operating income of around $89 million at the segment, a more than threefold jump from the year-ago profit of around $27 million. Importantly, operating income at the U.S. Land unit is expected to increase by $9 million sequentially.  

What Does Our Model Say?

Our proven model too does not conclusively predict that Helmerich & Payne will beat the Zacks Consensus Estimate this quarter. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -7.65%.

Zacks Rank: Helmerich & Payne currently has a Zacks Rank #2 (Buy), which increases the predictive power of ESP. But we need to have a positive Earnings ESP to be sure of the positive surprise.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Stocks to Consider

While earnings beat looks uncertain for Helmerich & Payne, here are some companies from the energy space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this quarter:

Cabot Oil & Gas Corporation COG has an Earnings ESP of +4.43% and a Zacks Rank #1 (Strong Buy). The firm is expected to release earnings on Apr 26. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Continental Resources, Inc. CLR has an Earnings ESP of +0.42% and a Zacks Rank #2. The company is anticipated to release earnings on Apr 29.

ConocoPhillips COP has an Earnings ESP of +1.55% and a Zacks Rank #2. The company is anticipated to release earnings on Apr 30.

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Helmerich & Payne, Inc. (HP) : Free Stock Analysis Report
 
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