Should You Book Profits In Helmerich & Payne Stock?
After OPEC announced the lifting of mandatory production curtailments, benchmark prices have observed a correction with limited upside in the long term. Per the U.S. Energy Information Administration’s STEO (short-term energy outlook), the WTI benchmark is likely to trend downward from $65/bbl in 2021 to $62/bbl in 2022. Despite rising production in the U.S. and other nations, upstream companies remain committed to cash preservation and capex curtailment measures. Thus, oil field service firms including Helmerich & Payne (NYSE: HP) are likely to observe slow top-line recovery. In Q3 2021, the company reported $332 million of total revenues, a decline of 51% over Q3 2019, as active rigs remained 44% lower. Our interactive dashboard analysis highlights Helmerich & Payne’s stock during the 2008 recession vs now.
Timeline of 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
- From 3/24/2020: S&P 500 recovers 102% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
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In contrast, here’s how HP and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)
Helmerich & Payne Stock vs S&P500 Performance Over 2007-08 Financial Crisis
HP stock declined from levels of around $52 in September 2008 (pre-crisis peak) to levels of around $24 in March 2009 (as the markets bottomed out), implying HP stock lost 54% from its approximate pre-crisis peak. It recovered post the 2008 crisis to levels of about $40 in early 2010 – rising by 68% between March 2009 and January 2010. In comparison, the S&P500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.
Asset impairments slashed company’s asset base by 20%
Helmerich & Payne’s revenues declined by 28% from $2.5 billion in 2018 to $1.8 billion in 2020 as the pandemic led to a slump in demand and drove down benchmark prices. While the earnings margin fell further due to a $500 million impairment charge, the company’s balance sheet shrunk by 17% (y-o-y) in 2020. Improvement in the company’s finances largely depends on global crude oil demand and supply constraints by the OPEC. With oil majors including Exxon Mobil, Chevron, BP, and Royal Dutch Shell also registering sizable impairment charges, we expect oil demand to improve gradually in the post-pandemic period.
Phases of Covid-19 crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment
While the company plans to maintain a prudent capital investment plan in 2021 to focus on long-term shareholder returns, Trefis believes that the stock has reached its near-term potential considering EIA’s expectation of lower benchmark prices during the latter half of the year.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market since 2016.
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