The oil services sector continues to report better earnings than the pessimistic forecasts. Major firms like Halliburton (HAL) and Schlumberger (SLB) easily exceeded expectations and the stocks have had nice run ups since their reports came out. Some of the smaller players also have come in with some solid reports. One driller, Precision Drilling (PDS), reported earlier this morning. I would expect this cheap oil services firm to have a positive reaction to its latest results.
Highlights from earnings report:
- Earnings came at 6 cents Canadian versus the 5 cents consensus.
- Revenues matched estimates as sales rose 10.6% Y/Y to 382mm CAD.
- The company announced five additional new build Super Series drilling rigs for Precision's North American operations backed by long-term contracts.
- Precision also reduced its adjusted 2012 capital expenditure plan from $975mm to $875mm in a prudent move to deal with uncertain demand.
- Drilling rig revenue per day increased by US$1,065 to US$23,145 in the company's United States operations and by $2,188 to $20,649 in the Canadian operations in the second quarter of 2012 over the comparable quarter in 2011.
Four reasons PDS has offers significant upside at just over $7 a share:
- The stock is very cheap. The stock sells at 91% of book value and just over 6 times forward earnings.
- The stock is selling near the bottom of its five year valuation range based on P/B, P/S and P/CF.
- The mean price target of the 6 analysts that cover the stock is just north of $12.50 a share, around 70% over the current stock price.
- The stock has recently bounced long term technical support and just crossed its 50 day moving average (see chart).