On Thursday, CFRA upgraded shares of Helmerich & Payne (NYSE:HP (NYSE:HPQ)) from Hold to Buy, adjusting the price target to $47 from $44. The upgrade follows the oilfield service company's recent announcement of an agreement to acquire KCA Deutag for $1.97 billion in cash. This strategic move is set to significantly enhance Helmerich & Payne's operations in the Middle East, a region identified as having substantial growth potential.
The new price target reflects a 5.5x multiple of the projected enterprise value to fiscal year 2025 (ending in September) earnings per share (EPS). This valuation multiple is below the company's historical average, which CFRA deems appropriate due to the current weakness in the North American oilfield services sector. Nonetheless, the discount applied is less than before, recognizing the potential impact of the KCA Deutag acquisition on the company's portfolio.
CFRA has revised its earnings estimates for Helmerich & Payne, reducing the fiscal year 2024 EPS forecast by $0.11 to $3.51 and the fiscal year 2025 projection by $0.06 to $3.78. The company's earnings for the quarter ending in June were $0.92 per share, surpassing the consensus estimate by $0.16.
The acquisition of KCA Deutag is anticipated to more than triple Helmerich & Payne's contracted backlog, potentially increasing its international EBITDA to between 20% and 25% of total EBITDA. This is seen as a beneficial addition to the company's predominant North American operations. The deal is expected to close subject to customary closing conditions and regulatory approvals.
In other recent news, U.S.-based drilling contractor, Helmerich & Payne, is set to acquire KCA Deutag International Limited for $1.9725 billion, expanding its presence in the Middle East. The acquisition will increase the company's rig count from 12 to 88 in the region, positioning Helmerich & Payne as a leading rig provider. The deal, expected to close by the end of 2024, adds offshore management contract operations and engineering operations to the company's portfolio.
Additionally, an investment firm has revised Helmerich & Payne's EBITDA forecast for 2025, leading to a reduction in the company's stock target from $44.00 to $39.00. The new target is based on 5 times the projected 2025 enterprise value to EBITDA ratio, assuming an EBITDA of $844 million, net debt of $352 million by Q2 2024, and 99 million fully diluted shares. The firm maintains a Neutral rating on the company's stock.
Following the acquisition, Helmerich & Payne will reorganize its operations into North America Solutions, International Solutions, and Offshore Solutions. The company expects to realize approximately $25 million in synergies by 2026, primarily through overhead reductions and procurement savings. These are the latest developments in the company's ongoing strategic transformation.
InvestingPro Insights
Following CFRA's upgrade of Helmerich & Payne, a deeper look into the company's financial health and market performance through InvestingPro data and tips provides additional insights. With a market capitalization of $4.06 billion and a P/E ratio standing at 12.03, the company presents itself as a potentially undervalued player in the oilfield services sector. This valuation is further supported by a PEG ratio of 0.7, indicating that the stock may be trading at a low price relative to near-term earnings growth. Moreover, a healthy gross profit margin of over 40% in the last twelve months as of Q2 2024 signifies efficient operations, a key factor in the industry's competitive landscape.
InvestingPro Tips highlight several strengths of Helmerich & Payne, including the company's ability to maintain dividend payments for 54 consecutive years, which is a testament to its financial resilience and commitment to shareholder returns. Additionally, the stock's low price volatility can appeal to investors seeking stability in their portfolios. With liquid assets that exceed short-term obligations and cash flows that can sufficiently cover interest payments, the company's financials appear robust. Furthermore, analysts predict profitability for the company this year, which, coupled with the strategic acquisition of KCA Deutag, paints an optimistic future.
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