These 3 Top Land Drillers Could Rally Big When Oil Rebound Starts

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For the energy investors who have suffered for over a year now, it’s probably little solace to them when Tuesday a pundit said oil could hit $80 by 2020. One thing is for sure, as oil stays somewhat locked in the $40 to $50 range it’s putting in a floor, and that could be very helpful as economic recovery starts to really push demand.

A new report from UBS’s outstanding oil services analyst Angie Sedita cautions that 2016 will remain difficult, especially for the offshore drillers none of which are rated Buy at UBS. But given the huge onshore drop in the rig count, it doesn’t take a genius to figure out that when demand escalates, the top land drillers could be in huge demand.

UBS has three top land drillers that are rated Buy, and they all could bring patient investors solid returns in 2016 and beyond.

Helmerich & Payne

This company primarily operates as a contract drilling company in South America, the Middle East and Africa. Helmerich & Payne Inc. (NYSE: HP) provides drilling rigs, equipment, personnel and camps on a contract basis to explore for and develop oil and gas from onshore areas and fixed platforms, tension-leg platforms and spars in offshore areas. Its contract drilling business operates through three reportable segments: U.S. Land, Offshore and International Land.

The drilling giant beat on fiscal third-quarter earnings. Revenues in the quarter were down more than 30% from the third quarter of fiscal 2014. However, the top line surpassed the consensus estimate. The UBS analysts acknowledge that pricing weakness will remain a struggle, but note that land drillers typically lead the sector off the bottom. The company reports fiscal fourth quarter numbers Thursday.

Helmerich & Payne investors receive a very big 4.7% dividend. The UBS price target for the stock is $70 and the Thomson/First Call consensus target is $56.05. Shares closed Tuesday at $58.53.

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Nabors Industries

Nabors Industries Ltd. (NYSE: NBR) offers rig instrumentation, optimization software and directional drilling services. It also provides completion, life-of-well maintenance and plugging and abandonment of a well.

The company markets approximately 466 land drilling rigs for oil and gas land-based drilling operations in the United States, Canada and approximately 20 other countries worldwide; approximately 445 rigs for land well-servicing and workover services in the United States; 98 rigs for land well-servicing and workover services in Canada; 42 rigs for offshore drilling operations in the United States and internationally; and seven jackup units and components of trucks and fluid hauling vehicles.

Nabors posted a third-quarter adjusted loss from continuing operations that was in line with Wall Street estimates, but much lower than the year-ago quarter’s adjusted profit. Drilling activity declined across many of the company’s business lines on the back of steep drop in oil prices. The results were partially offset by the effects of aggressive cost reduction.

Nabors investors receive a 2.36% dividend. The UBS price target is $15, and the consensus price objective is lower at $12.79. Shares closed Tuesday at $10.18.

Patterson-UTI Energy

This company could see meaningful business coming from Canada this year. Patterson-UTI Energy Inc. (NASDAQ: PTEN) subsidiaries provide onshore contract drilling and pressure pumping services to exploration and production companies in North America. Patterson-UTI Drilling Company and its subsidiaries operate land-based drilling rigs in oil and natural gas-producing regions of the continental United States and western Canada. Universal Pressure Pumping and Universal Well Services provide pressure pumping services primarily in Texas and the Appalachian region.

Patterson reported a smaller third-quarter loss than analysts expected. The company also posted revenue that topped Wall Street’s forecasts.

Patterson-UTI investors are paid a 2.46% dividend. The UBS price target is $20, and consensus target stands at $16.90. The stock closed Wednesday at $16.24.

ALSO READ: 5 Big Oil and Gas Stocks Analysts Want You to Buy Now

The oil services trade is still a contrarian one, to say the least. The pain in the industry is not going away anytime soon. So sticking with the top companies with big upside potential makes good sense, and patient investors may see giant upside from today’s trading levels.