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On Friday, JPMorgan analyst Sean Meakim reduced the price target on Helmerich & Payne (NYSE:HP) to $25.00 from the previous $34.00, while keeping a Neutral rating on the stock. The adjustment follows a forecast by the company that was weaker than anticipated for its third-quarter fiscal year 2025, as well as the suspension of five additional rigs by Saudi Aramco (TADAWUL:2222). These developments have caused Helmerich & Payne shares to underperform in comparison to its industry counterparts.
The company’s stock has lagged behind its peers by 6.31 percentage points, with a significant year-to-date decline of 42.19% and a one-year total return of -51.42%. This underperformance is attributed to the recent guide and rig suspensions by Saudi Aramco, which are expected to impact the financial results in the third quarter of fiscal year 2025. Despite these challenges, the company maintains strong fundamentals with a healthy current ratio of 1.68 and has maintained dividend payments for 55 consecutive years. In reaction to these challenges, Helmerich & Payne has announced plans to implement self-help initiatives aimed at achieving $50 to $75 million in synergies from its merger with KCA Deutag. This target exceeds the initial cost synergy goal of $25 million.
In the June quarter, Helmerich & Payne anticipates maintaining between 143 and 149 active rigs in its North America Solutions segment. As of May, the company reported having 149 active rigs. However, unlike in previous quarters, the churn of rigs is not being followed by immediate redeployment, indicating a slowdown as operators idle rigs. The company also noted that decreasing activity in the U.S. land market and pricing pressures are impacting the dayrates for its FlexRig fleet in the spot market.
Internationally, the company is preparing to launch its eighth FlexRig in Saudi Arabia and expects the eight FlexRigs to contribute over $25 million in direct margins annually over the life of the contract, with full impact anticipated by the fourth quarter of fiscal year 2025. Despite the rig suspensions, Helmerich & Payne does not foresee a decline in pricing for KCA Deutag’s rigs in Saudi Arabia.
Looking forward, the management has provided guidance for $280 million in selling, general, and administrative (SG&A) expenses and $378 million in capital expenditures for fiscal year 2025. The company also anticipates a reduced capital budget for fiscal year 2026, which will not include costs associated with FlexRig startups and upgrades. Consequently, JPMorgan has revised its EBITDA estimates for the company, reducing the third-quarter fiscal year 2025 estimate to $233 million from $247 million and adjusting the full-year fiscal 2025 and 2026 forecasts to $900 million and $855 million, respectively, from the previous estimates of $952 million and $1,116 million. The new December 2025 price target of $25 per share is based on a mid-single-digit free cash flow yield according to JPMorgan’s normalized framework.
In other recent news, Helmerich & Payne Inc. reported its first-quarter 2025 earnings, surpassing Wall Street expectations with an earnings per share (EPS) of $0.88, compared to the forecasted $0.66. The company also exceeded revenue predictions, reporting just over $1 billion against the anticipated $992.2 million. Helmerich & Payne recently completed its acquisition of KCA Deutag, which is expected to enhance its long-term growth strategy. The company has focused on technology innovations and performance-based contracts, which have contributed to its strong performance. Despite these positive developments, market uncertainty due to fluctuating oil prices has impacted investor sentiment. Helmerich & Payne’s stock experienced a decline of 1.92% in after-hours trading. Looking forward, the company plans to contract 143-149 rigs in North America and 85-91 rigs internationally for the third quarter of 2025. Analyst firm RBC inquired about the impact of Saudi rig suspensions, with Helmerich & Payne indicating that the situation remains uncertain.
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