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Can Helmerich & Payne (HP) Pull Off a Beat in Q4 Earnings?


Contract drilling services provider Helmerich & Payne, Inc. HP is set to release fiscal fourth-quarter 2017 results before the opening bell on Nov 16.

Helmerich & Payne — which counts Nabors Industries Limited NBR, Diamond Offshore Drilling, Inc. DO and ENSCO PLC ESV as its peers among others — 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 in the United States and international locations.

In the preceding three-month period, the company delivered a positive earnings surprise of 41.94% on the back of higher drilling activities, especially in the North American markets. Increased rig margins and operating income from the offshore and international markets also provided an impetus to the results. Further, the company posted an average positive earnings surprise of 9.22% in the last four quarters.

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

Factors at Play

Prices of oil at the end of the third quarter were $51.67 per barrel, up about 10.5% sequentially amid tightening supplies, improving demand outlook and OPEC-deal extension talks. The drilling contractor is poised to benefit from recovering commodity prices. With oil prices rebounding from their historic lows, the energy companies have started increasing their spending on upstream projects on account of higher profit margin. This, in turn, means more work for drillers like Helmerich & Payne. Thus, rising momentum in the U.S. markets and modest improvement in international markets are likely to drive the company’s revenues.

Helmerich & Payne’s industry leading drilling fleet including its advanced FlexRig and drill operating expertise are keys to its success.The FlexRig will help the company maintain relatively strong daily-rate margin in turn driving its earnings and revenues. Helmerich & Payne’s term contracts with well-capitalized oil majors and other independent companies will enable the contractor to achieve high level of utilization.

The company also has a solid balance sheet with impressive leverage and liquidity ratios giving Helmerich & Payne enough financial flexibility to take advantage of the recovering energy landscape. Moreover, the dividend history of the company is also quite impressive. The company has a record of hiking its dividend every year for 44 years, even during the industry downturn.

What Does Our Model Unveil?

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

Zacks ESP: Earnings ESP for this company is +7.32%. This is because the Most Accurate estimate is pegged at a loss of 19 cents, while the Zacks Consensus Estimate stands at a loss of 21 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Note that stocks with a Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

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