Recent Earnings Surprises Bode Well For This Cheap Drilling Stock

| About: Unit Corporation (UNT)

Better than expected earnings from Schlumberger (SLB) and Baker Hughes (BHI) lifted the entire oil services sector on Friday. However, numerous names in the space are still down a third or more from their recent highs of last summer. Given oil prices look like they have bottomed recently (See Chart) and earnings estimates for the sector seems to have stabilized after steady revisions downward over the last three months, I think there still is a lot of value in the sector. One driller that looks like it has bottomed, has cheap valuations and is significantly under analysts' price targets is Unit Corporation (UNT).

"Unit Corporation engages in the contract drilling, oil and natural gas, and mid-stream businesses in the United States." (Business description from Yahoo Finance)

7 reasons UNT is a good long term bargain at $39 a share:

  1. The median price target on UNT by the six analysts that cover the stock is $61 a share, 50% above current prices.
  2. A director made a $114k buy in May, it was the first insider buy in 2012.
  3. The stock is cheap at 93% of book value and around three times operating cash flow.
  4. UNT is selling at just 10 times forward earnings and has a five year projected PEG substantially less than 1 (.55)
  5. The stock is selling near the bottom of its five year valuation range based on P/E, P/S, P/B and P/CF.
  6. The company has met or beat earnings estimates each of the last six quarters. Given the low expectations, I could easily see the company beating estimates when it reports on July 30th.
  7. The stock looks like it has bottomed, has momentum and just crossed its 50 day moving average. The stock was over $60 last summer (See Chart)

Disclosure: I am long BHI, SLB.

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