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On Monday, Citi analysts adjusted their stance on Patterson-UTI Energy (NASDAQ:PTEN), downgrading the stock from Buy to Neutral and reducing its price target to $19.00 from the previous $25.00. The stock, currently trading at $17.80 and down over 50% in the past year, is showing signs of being undervalued according to InvestingPro analysis. The revision comes amidst forecasts of declining rig counts and dayrates, along with shrinking margins and free cash flow (FCF). Multiple analysts have recently revised their earnings expectations downward for the upcoming period.
Citi’s analysis projects a 9% decrease in active rig count for the third quarter compared to the first quarter, equating to a reduction of nine rigs for Patterson-UTI Energy. Additionally, the firm anticipates a roughly 10% drop in dayrates as existing contracts expire. This is expected to lead to a decrease in margins by more than 25% heading into 2026. The company currently maintains a gross profit margin of 37.1%, according to recent financial data.
On the hydraulic fracturing side, Citi expects that three of Patterson-UTI Energy’s frac crews, representing 10% of its total, will go idle. Concurrently, the gross profit per fleet is predicted to fall nearly 20%. These factors are likely to contribute to a decrease in EBITDA to $800 million in 2026, which is 18% below the FactSet consensus. The 2025 EBITDA forecast is also lower than consensus by 7%, at $874 million.
The anticipated release of working capital is predicted to support free cash flow this year at approximately $345 million. However, the decline in EBITDA and a slight working capital headwind are expected to compress FCF to just around $190 million the following year. This would result in a 2026 FCF yield of a mere 8.2%, a return that Citi believes may not be sufficient to attract energy investors.
In light of these risks to free cash flow generation, Citi has revised its target price for Patterson-UTI Energy to $6.50. This new target is based on a valuation of approximately 4.0 times the firm’s projected 2025 EBITDA and corresponds to an average free cash flow yield of about 11% over the years 2025 and 2026.
In other recent news, Helmerich & Payne reported its first-quarter 2025 earnings, which exceeded expectations with an earnings per share (EPS) of $0.88, surpassing the forecast of $0.66. The company also reported revenue of over $1 billion, outperforming the anticipated $992.2 million. Despite this positive performance, the company faces challenges, including a forecasted weaker third-quarter fiscal year 2025 and rig suspensions by Saudi Aramco (TADAWUL:2222), which have influenced financial projections. Citi has revised its outlook on Helmerich & Payne, lowering the price target to $25 from $32, while maintaining a Buy rating. This adjustment reflects a reduced U.S. rig count and lower international margin expectations. Similarly, JPMorgan has cut its price target to $25 from $34, maintaining a Neutral rating, due to the company’s recent guidance and rig suspensions. Helmerich & Payne has announced plans to achieve $50 to $75 million in synergies from its merger with KCA Deutag, exceeding the initial target of $25 million. The company also projects capital expenditures between $360 million and $395 million for fiscal year 2025, with a focus on technology-driven solutions and performance-based contracts.
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