Helmerich & Payne's (HP) Q3 Earnings: What's In The Cards?

Contract drilling services provider Helmerich & Payne, Inc. (NYSE:HP) is set to release fiscal third-quarter 2017 results before the opening bell on Jul 27.

Helmerich & Payne is a major land and offshore drilling contractor in the western hemisphere with the youngest but the most efficient drilling fleet. The company specializes in shallow to deep drilling in oil and gas-producing U.S. basins. It also drills oil and gas at international locations.

In the preceding three-month period, the company reported a negative earnings surprise of 17.50% mainly on the back of lower drilling activity, especially in the international markets. Further, the company missed estimates in three of the last four quarters with an average negative surprise of 4.24%.

Let’s see how things are shaping up for this announcement.

Helmerich & Payne, Inc. Price and EPS Surprise

Factors at play

Industry leading drilling fleet including its advanced FlexRig and drill operating expertise give Helmerich & Payne an edge over its peers. Moreover, rising momentum in the North American land market calls for higher revenues for drillers like Helmerich & Payne from the domestic markets which accounts for the major portion of its total revenue.

The company also has a solid balance sheet with impressive leverage and liquidity ratios giving Helmerich & Payne enough financial flexibility to sustain through industry downturn and take advantage of any upturn. Moreover, the dividend history of the company is also quite stunning. The company has a record of hiking its dividend every year for 44 years, even in the recent downturn.

During the quarter, the company entered into a deal to acquire Dallas-based drilling tech firm MOTIVE Drilling Technologies, Inc. This seems to be a prudent move by Helmerich & Payne as it will enhance the technological expertise of the company further and lead to the addition of shareholders value. The acquisition will improve the directional drilling process and will enable Helmerich & Payne to drill wells more efficiently and accurately leading to better quality wellbore.

However, weak oil and gas prices might mar demand for drilling contractors. During the second quarter, oil and natural gas prices declined 8.4% and 5%, respectively. Lower commodity prices might lead to reduced exploration and production activities. This could call for lower investments by oil majors which will impact revenues of equipment supplier companies. This is also reflected in the share price of Helmerich & Payne which witnessed a decline of around 18.5% in the second quarter.

Earnings Whispers

Our proven model does not conclusively show that Helmerich & Payne is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -6.45%. This is because the Most Accurate estimate stands at a loss of 33 cents, while the Zacks Consensus Estimate is pegged at a loss of 31 cents.

Zacks Rank: Helmerich & Payne currently carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings

While earnings beat looks uncertain for Helmerich & Payne, here are some firms in the Oil and gas Drilling industry that you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter.

Diamond Offshore Drilling, Inc. (NYSE:DO) has an Earnings ESP of +12.5% and a Zacks Rank #3. The company is anticipated to release earnings on Jul 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

Noble Corporation (NYSE:NE) has an Earnings ESP of +6.06% and a Zacks Rank #3. The company is anticipated to release earnings on Aug 3.

Rowan Companies plc (NYSE:RDC) has an Earnings ESP of +21.88% and a Zacks Rank #3. The company is anticipated to release earnings on Aug 2.

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