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U.S. Land Segment to Aid Helmerich & Payne (HP) Q1 Earnings

Nilanjan Choudhury

We expect Helmerich & Payne, Inc. HP to beat expectations when it reports fiscal first-quarter 2019 results before the start of trading on Wednesday, Jan 30. The current Zacks Consensus Estimate for the quarter under review is profit of 29 cents per share on revenues of $716.1 million.

In the preceding three-month period, the Tulsa, OK-based contract driller beat the consensus mark by 5.6% on better-than-expected performance from the U.S. Land business, backed by higher rig margins and revenues.

As far as earnings surprises are concerned, the drilling rig provider has a mixed record, having gone past the Zacks Consensus Estimate twice 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 continue winning ways by surpassing earnings estimate this time around too. Thankfully, our model indicates that Helmerich & Payne might beat on earnings in the fiscal first quarter.

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

Why a Likely Positive Surprise?

Our proven model shows that Helmerich & Payne is likely to beat the Zacks Consensus Estimate this quarter as it has the right combination of two key ingredients. A stock needs to have both 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 +2.17%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Helmerich & Payne currently has a Zacks Rank #3 (Hold), which, when combined with a positive ESP, makes us confident of earnings beat. 

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.

What is Driving the Better-Than-Expected Earnings?

Helmerich & Payne's ‘U.S. Land Drilling’ segment — which represents 90% of its total fleet and makes up around 83% of the oilfield service provider’s revenues — is likely to post strong results in the upcoming quarter. This magnifies Helmerich & Payne’s chances of notching up a quarterly beat.

Demand for Helmerich & Payne’s super-spec FlexRigs remain robust, especially in the prolific Permian Basin where the company has a market-leading 24% share. Importantly, the activity growth should lead to improved pricing environment and margin expansion.

With fundamentals pointing to a tighter super-spec rig market, the Zacks Consensus Estimate for operating revenues at the company’s largest segment in fiscal first quarter of 2019 is $613 million, up from $461.6 million a year earlier. The average rig revenue per operating day is expected to be $24,770, up 10.6% from the year-ago period, while the average rig margin per day is likely to increase 13.4% to $10,040.

Moreover, anticipated utilization levels of 68% in the to-be-reported quarter (versus 57% in first-quarter fiscal 2018) should result in an operating income of around $82 million at the segment, a more than threefold jump from the year-ago profit of $24.7 million.

Other Stocks to Consider

Helmerich & Payne is not the only energy company looking up this earnings season. Here are some firms from the 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:

Imperial Oil Limited IMO has an Earnings ESP of +15.72% and a Zacks Rank #3. The partnership is anticipated to release earnings on Feb 1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Murphy USA Inc. MUSA has an Earnings ESP of +29.37% and a Zacks Rank #3. The company is expected to release earnings on Jan 30.

NuStar Energy L.P. NS has an Earnings ESP of +13.92% and a Zacks Rank #3. The partnership is anticipated to release earnings on Jan 31.

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