No Payne No Gain

Top oil rig contractor Helmerich & Payne (HP) reports quarterly earnings Thursday morning, and I’m not expecting an immediate gusher.

The stock has been consolidating in the $65-70 range for the last three months, ever since its launch from 62 to 83 in the month following the presidential election ended with a painful thud. HP is down 3% since I recommended it in mid-March.

But while my expectations for a positive reaction from tomorrow’s results are modest, the long-term outlook for this shale resurgence play continues to brighten.

This is an industry leader with no net debt, one that generated cash at the bottom of the slump last year. It now starts a new energy upswing with growing market share, pricing power and meaningful technological and financial advantages over rivals.

The June 16, 2017 $60 calls were recently offered at $6.80, requiring an HP gain of just 1.5% over the next seven weeks for a buyer to break even. I like those odds and am adding this trade to our options portfolio.

This is a volatile stock with short-term downside risk, of course, but Helmerich & Payne’s strong position in a ramping industry and its resilient 4.3% dividend yield should provide plenty of support over the term of this in-the-money call option.

Stock Talk

Carlos Cesar Jesus D Costa

Carlos Cesar Jesus D Costa

Igor Greenwald

Igor Greenwald

Did you have a question?

Guest User

Guest User

COULD SOMEONE PLEASE GIVE ME AN OPINION ON CARA THERAPUTICS… TRYING TO DEVELOPE PAIN KILLER

Igor Greenwald

Igor Greenwald

It’s had a huge run-up and is far from a sure thing, is all I can tell you right now. Stock could obviously go higher, but the biotech space is extremely volatile and often trades on highly specialized information best interpreted by experts. So do ask yourself how much edge you have in this space versus pros with good access to expert and sometimes insider opinion.

Mark M

Mark M

Hi Igor,
Now that HP took a pretty big hit today, are you seeing this as a buy opportunity or do you feel it still has significant downside over the next few weeks, or do you just have second thoughts and are considering to put it on hold or even a sell in the near future? I just wanted your thoughts before i consider accumulating more and then learn that you flipped it to a hold/sell shortly after i buy more. Your feedback is sincerely appreciated. Thank you in advance.

Igor Greenwald

Igor Greenwald

I’ve now looked at the numbers and read the conference call transcript and really am more encouraged than anything else. Some of what ended up as a 5.6% daily loss yesterday we can chalk up to general energy weakness, but more probably had to do with incremental management talk that the rate of inquiries had leveled off of late as crude pulled back to $50. But looking at HP’s cash flow and fleet economics over the entire cycle and the longer-term macro factors driving crude prices, I remain unabashedly bullish. They have a huge backlog of advanced idle rigs seeing the biggest price gains right now, have increased US land market share from 15% in ’14 to 19% today and are still generating cash. Shale output is being supported by a backlog of drilled but uncompleted wells that’s getting worked down pretty quickly. Soon, there will need to be more drilling to maintain shale output and growth rates, and perhaps to meet global demand that shows no sign of slowing down. We might need $60-65 crude to see this stock pay off. We’ll get there.

DW

David Waller

HP continues to cause pain now in 52 range, down from buy at 60. Hang on or dump it?

Igor Greenwald

Igor Greenwald

I would have slapped a Sell on it if I thought it worth dumping. Definitely been a tough hold, as you would expect in the current oil price environment. But I’m not down on it at all.

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