Argus Steps To The Sidelines On Helmerich & Payne, Waiting For Signs Of Increased Drilling

Argus expects Helmerich & Payne, Inc. (NYSE: HP) to witness lower rig utilization in the remaining period of the current year. Aside from that, the company is also focusing its dependence on low-price spot contracts instead of higher-priced term contracts. As a result, its revenue is likely to be impacted in the remainder of 2016.

For the year 2016, analyst Bill Selesky expects a drop of 50 percent in overall revenue for the current year. However, the drop in revenue will moderate to nine percent in the next year. Therefore, the analyst has widened his loss estimates for both the periods. These unfavorable factors also justified the analyst in downgrading the stock from a Buy to a Hold rating.

Related Link: D.A. Davidson Initiates Coverage On Helmerich & Payne At Buy

In the last four quarters, Helmerich & Payne's earnings missed the Street estimates in three quarters, including the last two quarters. The Street is expecting a revenue drop of 53.3 percent in the current fiscal year and 2.6 percent next year.

"On the positive side, HP offers an above-average dividend yield of about 4.9 percent, and should continue to benefit from its fleet of advanced FlexRigs. We would consider an upgrade on signs of increased spending by the company's E&P customers and a sustainable upturn in drilling activity," the brokerage said in a note to clients.

Analyst indicated that he could consider an upgrade of the stocks if the company's E&P customers show signs of increased spending apart from a sustainable improvement in drilling activity.

At time of writing, Helmerich & Payne was up 0.4 percent on the day at $57.51.

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