On Friday, Patterson-UTI Energy (NASDAQ:PTEN) had its price target lowered to $17.00 from $18.00 by Evercore ISI, while the firm maintained an Outperform rating on the stock. The company has showcased its ability to generate significant free cash flow, as evidenced by its first-quarter performance. Patterson-UTI Energy reported $139 million in free cash flow and returned $130 million to shareholders through dividends and buybacks.
The firm took advantage of the recent dislocation in its share price by accelerating its buyback activity in the first quarter, repurchasing 4% of the post-deal shares outstanding since its acquisitions. Evercore ISI anticipates that Patterson-UTI Energy will return over $400 million to its shareholders in 2024. Following the integration of NexTier, the company has successfully achieved $200 million of annualized synergies that were projected at the time of the transaction.
Despite facing challenges in the U.S. Land market due to a downturn in natural gas basin activity and customer consolidation, Patterson-UTI Energy is expected to continue gaining market share through its differentiated services and integrated platform.
The company's U.S. Contract Drilling business is forecasted to see a decrease in the average active rig count by 7 rigs, with average daily margins likely to drop by $300. The Completion Services business is also projected to experience a 9% sequential decline in segment revenue in the second quarter, affected by lower natural gas activity and scheduled gaps in fleet operations.
However, the third quarter is expected to show improvement in segment revenue as long-term customers return to completion work post-drilling. Additionally, by mid-year, Patterson-UTI Energy is set to have 140,000 electric horsepower, and nearly 80% of its active fleets will be capable of utilizing natural gas.
The firm's recent transactions are believed to have bolstered its competitive edge in the drilling and completion services markets, reinforcing Evercore ISI's confidence in maintaining the Outperform rating for the stock.
InvestingPro Insights
In line with the recent analysis by Evercore ISI, Patterson-UTI Energy (NASDAQ:PTEN) presents compelling financial metrics that reflect its market position and potential for growth. According to InvestingPro data, the company has a market capitalization of approximately $4.27 billion and is trading with a P/E ratio of 17.44, which adjusts to a more attractive 12.85 when considering the last twelve months as of Q1 2024. This suggests that the stock may be undervalued relative to its earnings growth, an observation supported by the company's PEG ratio of 0.67 during the same period, indicating potential for investment value relative to expected earnings growth.
InvestingPro Tips indicate that Patterson-UTI Energy has maintained dividend payments for 21 consecutive years, demonstrating a strong commitment to shareholder returns. Additionally, analysts predict the company will be profitable this year, which is corroborated by the firm's profitable performance over the last twelve months. These insights are particularly relevant for investors looking for stability in dividend payments and profitability in their stock selections.
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