Is Helmerich & Payne Stock A Gamble?

HP: Helmerich & Payne logo
HP
Helmerich & Payne

The shares of Helmerich & Payne (NYSE: HP) dropped almost 38% fairly in-line with the monumental fall in benchmark oil prices over concerns of another infectious wave of the coronavirus pandemic. The company provides exploration and production services to upstream oil & gas operators in the U.S. and abroad. Notably, domestic operations contribute 92% of the total revenues. In recent filings, the company highlighted improving rig count numbers in the U.S. with expectations of higher capital expenses by upstream companies in the coming quarters. Considering HP’s strong domestic presence and likelihood of growing production volumes in the U.S. despite the scare of another infectious wave, Trefis believes that the stock has a sizable upside potential. Our interactive dashboard highlights Helmerich & Payne During 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 103% from the lows seen on Mar 23, 2020, with the Fed’s multi-billion dollar stimulus package keeping the economy afloat during the prolonged lockdown and the vaccination drive allowing things to gradually return to near-normal

 

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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.

Declining benchmark prices to weigh on HP’s revenues and profitability

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. Slow easing of supply constraints by OPEC and rising demand assisted benchmark prices this year, but re-imposition of travel restrictions due to the new coronavirus variant has led to a deep dive again. Notably, expectations of oil supply exceeding demand in the coming quarters is likely to put a downward pressure on benchmark prices.

CONCLUSION

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-September 2020: Recovery of demand, with the phased lifting of lockdowns – no panic anymore with number of cases appearing to have plateaued
  • October 2020-February 2021: Unprecedented surge in Covid cases forcing a fresh round of lockdowns across the nation
  • Since March 2021: Ongoing vaccination drive and gradual re-openings drive an improvement in demand – buoying market sentiment

Considering the company’s prudent capital investment plan and likelihood of growing oil & gas production volumes in the country, Trefis believes that the stock has a sizable upside potential.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Dec 2021
MTD [1]
2021
YTD [1]
2017-21
Total [2]
 HP Return -35% -7% -72%
 S&P 500 Return -2% 21% 103%
 Trefis MS Portfolio Return -3% 40% 283%

[1] Month-to-date and year-to-date as of 12/6/2021
[2] Cumulative total returns since 2017

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