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Is Patterson-UTI Energy Inc (NASDAQ:PTEN) As Strong As Its Balance Sheet Indicates?

Wade Goff

Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Patterson-UTI Energy Inc (NASDAQ:PTEN), with a market capitalization of US$3.94b, rarely draw their attention from the investing community. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. PTEN’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into PTEN here.

View our latest analysis for Patterson-UTI Energy

How does PTEN’s operating cash flow stack up against its debt?

PTEN has built up its total debt levels in the last twelve months, from US$713.6m to US$1.12b – this includes both the current and long-term debt. With this rise in debt, PTEN’s cash and short-term investments stands at US$241.9m , ready to deploy into the business. On top of this, PTEN has generated US$585.6m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 52.3%, indicating that PTEN’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In PTEN’s case, it is able to generate 0.52x cash from its debt capital.

Can PTEN meet its short-term obligations with the cash in hand?

Looking at PTEN’s most recent US$601.4m liabilities, the company has been able to meet these obligations given the level of current assets of US$1.01b, with a current ratio of 1.68x. Usually, for Energy Services companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

NasdaqGS:PTEN Historical Debt September 25th 18

Is PTEN’s debt level acceptable?

PTEN’s level of debt is appropriate relative to its total equity, at 28.8%. PTEN is not taking on too much debt commitment, which may be constraining for future growth.

Next Steps:

PTEN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for PTEN’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Patterson-UTI Energy to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for PTEN’s future growth? Take a look at our free research report of analyst consensus for PTEN’s outlook.
  2. Valuation: What is PTEN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether PTEN is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.