S&P 500 slips as weaker services data stoke fresh economic concerns
On Thursday, Citi reaffirmed its Neutral rating on Helmerich & Payne (NYSE:HP (NYSE:HPQ)), maintaining a $33.00 price target for the company's stock. The decision followed a recent discussion with the company regarding market trends. Helmerich & Payne's active rig count and pricing are reportedly holding steady, despite a general downturn in the U.S. rig count. This has led Citi to keep its fourth-quarter EBITDA forecast for the company at $206 million, closely aligning with the consensus estimate of $208 million.
Furthermore, Helmerich & Payne has recently been informed of suspension notices for eight Saudi rigs operated by KCA Deutag, which could be halted for up to twelve months. In light of this development, Citi has revised its capital expenditure forecast for fiscal year 2025 to approximately $450 million, combining Helmerich & Payne's own expected capex of around $350 million with that of KCA Deutag. However, there's an acknowledgment of a potential increase in KCA Deutag's capex due to currently low per-rig spending.
Citi's revised estimates now place the combined fiscal year 2025 EBITDA at $1.03 billion, which falls short of the consensus among those analysts who have updated their forecasts, which stands at $1.13 billion. The firm also projects a free cash flow (FCF) of $456 million for the same period. These projections suggest a valuation of approximately 5 times the EV/EBITDA multiple and a free cash flow yield of around 15%. The $33 price target is based on this same valuation metric.
In other recent news, drilling company Helmerich & Payne has announced several significant developments. The company's Board of Directors adopted amendments to the bylaws, including how stockholder proposals and director nominations are handled. They also removed a rule regarding director resignation after uncontested elections. Helmerich & Payne declared a quarterly cash dividend of $0.25 per share, payable in December 2024. The company is planning a private placement of senior unsecured notes to finance the acquisition of KCA Deutag International Limited.
The company appointed J. Kevin Vann as the new Chief Financial Officer, succeeding Mark W. Smith. RBC Capital Markets and CFRA have responded to these developments with upgrades and adjustments, raising their price targets for the company. However, an unnamed firm reduced the company's stock target due to a revised EBITDA forecast for 2025.
Helmerich & Payne plans to reorganize its operations into North America Solutions, International Solutions, and Offshore Solutions post-acquisition. The company also anticipates realizing approximately $25 million in synergies by 2026, primarily through overhead reductions and procurement savings.
InvestingPro Insights
As Helmerich & Payne navigates the challenges and opportunities in the current market, insights from InvestingPro shed additional light on the company's financial health and stock performance. The company's market capitalization stands at $3.07 billion, reflecting its overall market value. With a P/E ratio of 9.07, Helmerich & Payne trades at a valuation that suggests investors are paying less for each dollar of earnings compared to the industry average, which could indicate a potentially undervalued stock.
One of the InvestingPro Tips highlights that analysts are optimistic about the company's earnings, with six analysts having revised their earnings upwards for the upcoming period. This consensus could signal confidence in the company's ability to generate profits amidst the current market conditions. Additionally, the company's ability to maintain dividend payments for 54 consecutive years speaks to a strong commitment to shareholder returns, which may be particularly attractive to income-focused investors.
InvestingPro's real-time data also shows that Helmerich & Payne operates with a moderate level of debt and has liquid assets that exceed short-term obligations, suggesting a solid financial position to weather economic uncertainties. Moreover, the company is trading near its 52-week low, which might present a buying opportunity for long-term investors who believe in the company's fundamentals and future prospects.
For more detailed analysis and additional InvestingPro Tips, investors can visit the dedicated page for Helmerich & Payne at https://www.investing.com/pro/HP. With 7 more tips available, users can gain a comprehensive understanding of the company's investment potential.
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