On Friday, Citi analysts upgraded Helmerich & Payne (NYSE:HP) stock, traded on the New York Stock Exchange under the ticker NYSE:HP (NYSE:HPQ), from Neutral to Buy. Accompanying the upgrade, the price target was also raised to $40.00 from the previous $33.00.
Citi's decision to upgrade comes with an expectation of a significant free cash flow (FCF) yield for Helmerich & Payne following the closure of its KCA transaction. The analyst anticipates an approximate 13% yield, even with a potential 35% decline in KCA's EBITDA from the second quarter of 2024. Despite the uncertainties surrounding KCA's EBITDA, the analyst believes that the market has already priced in a more negative scenario for the stock.
The analyst pointed out that the completion of the KCA deal and the subsequent release of a consolidated forecast could serve as a "clearing event," given the stock's high short interest of over 12%. This, according to the analysts, could establish a positive catalyst watch on the stock. He also noted Helmerich & Payne's robust U.S. operations, which continue to be a major contributor to the company's EBITDA, suggesting that the yield could compress to around 11%.
Furthermore, Cit analysts commented on the overall Small/Mid-cap Oilfield Services (SMID OFS) sector, mentioning that while there is uncertainty in KCA's EBITDA, Helmerich & Payne's stock seems to be undervalued considering potential worse outcomes that are already factored into its current price.
In contrast to Helmerich & Payne, the analysts observed that Oceaneering International (NYSE:OII) had performed well, with a 28% gain last year, and had provided a solid EBITDA forecast for 2025. However, due to slightly reduced EBITDA expectations and anticipated slower growth, he foresees limited upside for OII.
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