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Helmerich & Payne Down 10% in a Year: What Awaits the Stock?
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Helmerich & Payne (HP - Free Report) has endured 12 tough months, with its shares dropping roughly 10%, starkly underperforming the broader energy sector's 4.3% gain and the S&P 500 Index’s impressive 28.5% surge.
HP One-Year Stock Performance
Image Source: Zacks Investment Research
This steep decline begs the question: where does this oil and gas drilling contractor stand now? Let’s dive deeper into HP’s performance, challenges, and future outlook to uncover what might be next for the company.
Helmerich & Payne Disappoints in Q4
Per the latest quarterly print, Helmerich & Payne reported a fourth-quarter fiscal 2024 adjusted net income of 76 cents per share, which missed the Zacks Consensus Estimate of 79 cents. The underperformance was due to weakness in the company's International Solutions and Gulf of Mexico segments.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
What’s Dragging Down HP Stock?
Investors seem to be worried about the declining rig count in North America and increased operational costs.
Potential Pressure From Declining Rig Count: Helmerich & Payne faces headwinds in its North American Solutions segment, which accounts for almost 90% of revenues. Active rigs declined from 176 to 152 in fiscal 2024, reducing revenues by 6% to $1.83 billion. With a term contract backlog shrinking to $700 million in the last reported quarter and expectations of flat or declining rig counts in early 2025, prolonged industry softness and low natural gas prices could further dampen revenue growth.
Reduced Capital Expenditures and Dividend Cuts: Helmerich & Payne's decision to cut capital expenditures by 40% to $290-$325 million in 2025 and suspend its 17 cents per share supplemental dividend underscores short-term financial strain. While these measures prioritize debt reduction and fund the $1.97 billion KCA Deutag acquisition, they reduce shareholder returns, potentially deterring income-focused investors. Although the base dividend remains intact, these actions could affect market perception and weigh on investor confidence in the near term.
Uncertainty Surrounding KCA Deutag Acquisition: While the KCA Deutag acquisition is strategically significant, the suspension of eight rigs in Saudi Arabia by KCA raises concerns. These rigs face up to 12 months of downtime, potentially delaying revenue generation. Additionally, integration risks and regulatory approvals further complicate the timeline, and higher debt levels to finance the acquisition may weigh on H&P's balance sheet in the near term.
Falling EPS: The Zacks Consensus Estimate for Helmerich & Payne’s fiscal 2025 EPS implies a year-over-year drop of 10.9%. Moreover, HP is a component of the Zacks Oil and Gas Drilling industry, which currently ranks in the bottom 10% out of approximately 250 Zacks Ranked Industries. We expect this industry group as a whole to underperform the market over the next few months.
Image Source: Zacks Investment Research
Competitive Pressures from M&A: The recent wave of mergers among large oil and gas producers, such as ExxonMobil's (XOM - Free Report) $60 billion acquisition of Pioneer and Chevron's (CVX - Free Report) $53 billion takeover of Hess, could lead to reduced drilling demand. As these companies streamline operations and cut costs, oilfield service providers like Helmerich & Payne may face pressure on day rates and contracts.
Final Word: Avoid HP
Based on the above analysis, potential investors may want to give Helmerich & Payne stock the cold shoulder until the situation shows major signs of improvement.
Image: Bigstock
Helmerich & Payne Down 10% in a Year: What Awaits the Stock?
Helmerich & Payne (HP - Free Report) has endured 12 tough months, with its shares dropping roughly 10%, starkly underperforming the broader energy sector's 4.3% gain and the S&P 500 Index’s impressive 28.5% surge.
HP One-Year Stock Performance
This steep decline begs the question: where does this oil and gas drilling contractor stand now? Let’s dive deeper into HP’s performance, challenges, and future outlook to uncover what might be next for the company.
Helmerich & Payne Disappoints in Q4
Per the latest quarterly print, Helmerich & Payne reported a fourth-quarter fiscal 2024 adjusted net income of 76 cents per share, which missed the Zacks Consensus Estimate of 79 cents. The underperformance was due to weakness in the company's International Solutions and Gulf of Mexico segments.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
What’s Dragging Down HP Stock?
Investors seem to be worried about the declining rig count in North America and increased operational costs.
Potential Pressure From Declining Rig Count: Helmerich & Payne faces headwinds in its North American Solutions segment, which accounts for almost 90% of revenues. Active rigs declined from 176 to 152 in fiscal 2024, reducing revenues by 6% to $1.83 billion. With a term contract backlog shrinking to $700 million in the last reported quarter and expectations of flat or declining rig counts in early 2025, prolonged industry softness and low natural gas prices could further dampen revenue growth.
Reduced Capital Expenditures and Dividend Cuts: Helmerich & Payne's decision to cut capital expenditures by 40% to $290-$325 million in 2025 and suspend its 17 cents per share supplemental dividend underscores short-term financial strain. While these measures prioritize debt reduction and fund the $1.97 billion KCA Deutag acquisition, they reduce shareholder returns, potentially deterring income-focused investors. Although the base dividend remains intact, these actions could affect market perception and weigh on investor confidence in the near term.
Uncertainty Surrounding KCA Deutag Acquisition: While the KCA Deutag acquisition is strategically significant, the suspension of eight rigs in Saudi Arabia by KCA raises concerns. These rigs face up to 12 months of downtime, potentially delaying revenue generation. Additionally, integration risks and regulatory approvals further complicate the timeline, and higher debt levels to finance the acquisition may weigh on H&P's balance sheet in the near term.
Falling EPS: The Zacks Consensus Estimate for Helmerich & Payne’s fiscal 2025 EPS implies a year-over-year drop of 10.9%. Moreover, HP is a component of the Zacks Oil and Gas Drilling industry, which currently ranks in the bottom 10% out of approximately 250 Zacks Ranked Industries. We expect this industry group as a whole to underperform the market over the next few months.
Competitive Pressures from M&A: The recent wave of mergers among large oil and gas producers, such as ExxonMobil's (XOM - Free Report) $60 billion acquisition of Pioneer and Chevron's (CVX - Free Report) $53 billion takeover of Hess, could lead to reduced drilling demand. As these companies streamline operations and cut costs, oilfield service providers like Helmerich & Payne may face pressure on day rates and contracts.
Final Word: Avoid HP
Based on the above analysis, potential investors may want to give Helmerich & Payne stock the cold shoulder until the situation shows major signs of improvement.
HP currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.