I'm getting ready for the Sweet 16 Quarterly Update luncheon on Monday, May 23 at Texas Land & Cattle resturant (12710 SW Freeway, Stafford, Texas). It is open to members and guests.
I'm looking over every S-16 forecast model carefully. Analysts EPS and CFPS forecasts for PTEN that have been provided to First Call have gone up sharply since first quarter results came out the end of April. The share price is down $3 over the same period. IMO PTEN Fair Value is $40 and likely to go up as they roll out more APEX rigs.
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Patterson-UTI Energy, Inc. (PTEN) joined the Sweet 16 on February 10. Based on my Net Income and Cash Flow Forecast I now believe the company has a Fair Value of $40/share (6X forward CFPS).
First quarter results were strong, hitting my forecast on the nose. 2nd quarter results should be flat to Q1 with increasing dayrates offsetting a slight decline in the active rig count due to the spring slowdown in Canadian drilling.
I now have a high level of confidence in my forecast model. At the current share price, the stock is trading for less than 5X estimated cash flow per share. That is extremely low for a company of this quality.
After looking closely at five onshore drillers, I choose PTEN for the Sweet 16 for the following three reasons:
• Patterson has a large fleet of idle rigs that are perfectly suited for the Mississippi Lime play in northern Oklahoma and southern Kansas. Take a look at my report on SandRidge Energy (SD) to get more information on this emerging oil play that I believe will get a lot more attention this summer.
• As the oil price goes higher, the demand for rigs in the U.S. oil plays, especially the Eagle Ford, Permian Basin and Niobrara, the demand for quality onshore rigs will increase. So will the contract day rates. PTEN is one of the top drilling contractors in all three areas.
• PTEN’s subsidiary, Universal Well Services has a lot of upside. I don’t think the Wall Street crowd sees this potential and how it differentiates PTEN from the pack.