The price of oil has been extremely volatile as of late, hitting a 13-year high of $130 a week ago amid fears of a large supply deficit caused by Russia’s invasion of Ukraine. In addition, President Biden has recently banned U.S. imports of Russian oil, liquefied natural gas, and coal, which pushed global gas and oil prices even higher.
As of today, U.S. oil prices gave back a significant portion of their gains and slid below $100 per barrel. With more volatility expected, companies engaged in Oil & Gas exploration and production activities, along with auxiliary industries, are in focus. Which is why today I am going to analyze and compare two Oil & Gas drilling stocks, Transocean Ltd. (RIG) and Helmerich & Payne, Inc. (HP), to determine which one looks best for investors’ portfolios.
Founded in 1926, RIG offers offshore contract drilling services, which consist of mobile offshore drilling rigs, related equipment, and work crews to drill oil and gas wells for oil and gas exploration and production companies around the world. Based in Minneapolis, HP also provides drilling services and solutions for oil and gas wells worldwide. It operates across three business segments: North America Solutions, Offshore Gulf of Mexico, and International Solutions.
YTD, shares of RIG have appreciated about 50%, while HP stock soared over 64% over the same period.
On December 20th, ADNOC Drilling and Helmerich & Payne, Inc. announced the completion of the Rig Enablement Framework Agreement, which focused on operational performance and expansion plans. The deal is expected to enhance ADNOC Drilling’s land rig operational performance and support its growth objectives. At the same time, the agreement includes HP’s investment in ADNOC Drilling’s IPO, supporting the company’s international growth strategy. As a result, both companies should benefit from this development.
Financial Overview & Analysts Estimates
On February 22nd, Transocean revealed an earnings report for the fourth quarter of 2021. In Q4, the company’s total contract drilling revenues were reported 10.2% lower year-over-year at $621 million primarily due to lower revenue efficiency and a rig that was idle in the fourth quarter. Not surprisingly, RIG missed Wall Street revenue estimates by $37.81 million. The company also reported Non-GAAP EPS of ($0.19), missing analysts’ consensus by $0.07.
Furthermore, its operating and maintenance expense increased 8% quarter-over-quarter to $430 million amid an increase in the allowance for excess materials and supplies and increased personnel & in-service maintenance costs. It led to a 100% QoQ increase in its net loss to $260 million. However, the company’s Adjusted EBITDA stood at $250 million, indicating a 2% quarter-over-quarter improvement.
For the first quarter, the analysts expect RIG’s EPS to stand at ($0.25), which is a 30.64% year-over-year decrease. Following the same trend, an $604.33 million average revenue projection for FQ1 shows a 7.45% YoY decrease.
In terms of Helmerich & Payne financials, its top line rose 66.4% on a year-over-year basis to $409.78 million in the first fiscal quarter of 2022. This revenue growth was driven by higher drilling services revenue across its key business segments, assisting HP to beat Wall Street’s revenue estimates by $19.31 million. In addition, the company’s net loss stood at $51.36 million versus its year-ago value of $70.43 million. Consequently, HP reported a Non-GAAP EPS of ($0.45), topping analysts’ expectations by $0.02.
Besides, the company should reward its shareholders with an annual dividend payout of $1.00 per share, leading to a forward yield of 2.45%, which is lower than the sector’s median threshold of 4.09%.
Currently, Wall Street estimates HP’s earnings to rise 48.82% year-over-year in the second quarter to ($0.31) a share. Moreover, analysts expect that its Q2 revenue should increase to $444.26 million. This estimate implies a rise of 50.00% on a year-over-year basis.
Comparative Valuation & Growth
In terms of EV/Sales FWD, RIG is currently trading at 3.80x, which is higher than HP, whose multiple is currently standing at 2.42x. However, both companies look overpriced compared to the sector’s median of 2.35x.
When it comes to the Forward EV/EBITDA multiple, HP’s EV/EBITDA multiple of 14.70x is 19% higher than RIG’s 12.35x.
Finally, HP is anticipated to deliver higher forward revenue and EBITDA growth rates of 7.67% and 7.34%, comparing favorably with RIG’s negative figures of -3.76% and -7.67%, respectively.
While both companies should experience higher demand for their services if oil and gas prices remain elevated, I believe Helmerich & Payne is a better pick than Transocean currently, based on its superior financials, higher forward growth rates, and relatively cheaper valuation.
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RIG shares were trading at $3.90 per share on Tuesday morning, down $0.24 (-5.80%). Year-to-date, RIG has gained 41.30%, versus a -11.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist. More...
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