Stifel says “significant upside potential” -G&M Stifel analyst Cole Pereira sees “significant upside potential” for Precision Drilling Corp. (
) even with recent outperformance.”
Following a virtual meeting with Precision president and chief executive officer Kevin Neveu, Mr. Pereira said he expects recent increases in drilling activity and margins to continue.
“PD remains uniquely positioned as its leverage profile drives significant equity upside, which we view as being de-risked by its focus on debt reduction (targeting $400-million over the next four years) and maturity profile (no maturities until 2025),” the analyst said.
He noted activity and day-rates continue to rise in the United States and the company’s Canadian operations remain “strong.”
“Precision’s Canadian business continues to perform well with WCSB Montney-calibre rigs largely fully utilized, and its Clearwater position continues to be a differentiator given the efficiencies from that rig class,” he said. “PD currently has 52-per-cent market share in the Clearwater running 12 out of 23 rigs total. We estimate that the Clearwater was responsible for 9 per cent of Canadian drilling activity in 2021, up from 3 per cent in 2018. We expect this increasing trend to continue given the superior economics in the play, which should benefit PD’s broader market share accordingly.”
“PD highlighted that it believes it could be in a position to add a number of rigs each quarter in the U.S. in 2022, which could fully exhaust its idle super spec rig capacity by EOY. This along with the recent gains in the land rig count to 619 likely suggests that our total U.S. rig count forecast of 640 in 2022E and 690 in 2023 could see further upside. Moreover, commentary from Precision’s peers also suggests the potential for upside to our margin forecasts as well.”
Keeping a “buy” rating for Precision share, Mr. Pereira raised his target to $80 from $75. The average is $78.06.
“We expect PD to be a material beneficiary of the improvement in oil & gas drilling activity as commodity prices continue to recover from COVID-19,” he said. “We believe the company has an attractive operational footprint in the Montney and United States, both of which we expect to be focal points for North American OFS activity. Furthermore, the stock has an attractive FCF profile and no maturities for the next three years. With the company guiding to $400-million of additional debt reduction by 2025, this should facilitate a meaningful transfer of Precision’s enterprise value to the equity holder from the debt holder.”
PRECISION DRILLING CORP
69.95+39.26 (127.92%)