1 Virtually Unknown Driller Is Way Undervalued

When it comes to energy stocks, some names leap off the pages. Exxon, Valero, Conoco Phillips are all well-known but what about the lesser known names, is there an opportunity to find one trading at bargain basement prices there?

We stumbled across one such firm that likely has never crossed the radars of most investors. Its name is much less familiar than its ticker symbol, HP. Back in the day, that used to be the symbol for the well-known technology firm but these days it’s associated with Helmerich & Payne, a driller that seems to provide a compelling value proposition.

Key Points

• Helmerich & Payne is not a well-known driller but has been growing top and bottom lines impressively.
• Analysts see tremendous upside from where the share price currently sits.
• Key metrics all support a solid opportunity for value investors as well as income-seekers thanks to the 5.1% dividend.

Is This Driller a Deal?

From exploration to drilling and on to production, Helmerich & Payne is involved in the full gamut and has been growing in leaps and bounds. Over the past 3 years, revenues have climbed from $1.2 billion to $2.8 billion.

Earnings before interest and taxes over that same time frame swung from negative $350 million to plus $537 million. And earnings per share has completed an impressive turnaround from $3.04 in the red to $4.16 in the black.

The newfound profitability has been a boon for shareholders who are currently enjoying a handsome dividend yield of 5.1% and there is no signs that the payout is in jeopardy with a payout ratio under 50%.

Indeed the good news pours forth for shareholders because management has eyed an opportunity and engaged in a meaningful share repurchase scheme.

Is Helmerich & Payne a Buy?

Having lagged the market by a wide margin over the past twelve months, Helmerich & Payne is starting to look like a serious bargain. Whether on a cash flows basis, which suggests upside of 50.0% to fair value of $53 per share, or Wall Street’s consensus estimate of $46 per share, suggesting closer to 33% upside, the future appears bright for value investors.

The stock is trading at a PE ratio just north of 8x also, further confirming the bullish thesis. And there is no sign that profitability, which has shined over the past year, will abate over the next year or so.

To give investors even more confidence, key metrics like return on invested capital and return on equity sit at around 11.7% and 15.5% respectively.

All in all, Helmerich & Payne has the signs of being a really attractive value stock with a compelling reward to risk ratio. It seems like it’s just a matter of time before astute investors cotton on to the fact that it’s trading at rock bottom prices relative to its value and start to scoop it up.

Certainly, any meaningful spike in oil prices should act as a serious tailwind buoying the stock back to higher prices closer to the firm’s intrinsic worth.