Company Description: Helmerich & Payne, Inc. is the holding company for Helmerich & Payne International Drilling Company, an international drilling contractor.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
HP is trading at a discount to all four valuations above. When also considering the NPV MMA Differential, the stock is trading at a 37.1% discount to its calculated fair value of $99.33. HP earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
HP earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. HP earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1959 and has increased its dividend payments for 43 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
HP earned a Star in this section for its NPV MMA Diff. of the $1,627. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as HP has. The stock's current yield of 4.4% exceeds the 2.47% estimated 20-year average MMA rate.
Peers: The company’s peer group includes: Nabors Industries Ltd. (NBR) with a 2.0% yield, Noble Corporation plc (NE) with a 10.6% yield and Transocean Ltd. (RIG) with a 21.0% yield.
Conclusion: HP earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks HP as a 4-Star Strong stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $101.99 before HP's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 43 years of consecutive dividend increases. At that price the stock would yield 2.7%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is -0.4%. This dividend growth rate is lower than the 4.8% used in this analysis, thus providing a margin of safety. HP has a risk rating of 1.75 which classifies it as a Medium risk stock.
HP is engaged in the contract drilling of oil and gas wells in the U.S. and internationally. The company supplies drilling rigs, equipment, personnel, and camps on a contractual basis to explore for and develop oil and gas from onshore areas and from fixed platforms, tension-leg platforms, and spars in offshore areas. HP is viewed as a premium name in their segment.
The company is facing significant headwinds from decline in crude oil prices, which is weighing on demand for incremental drilling, even the premium units such as HP's FlexRigs have felt the effects of the downturn. However, in late January the company reported fiscal first quarter net income of $203 million, up from $173 million in the comparable prior year's quarter. President and CEO John Lindsay commented:
Following record levels of revenue and operating income during four consecutive years, we are pleased with the strong results in our first quarter of fiscal 2015. The strong quarter is overshadowed by a rapidly deteriorating energy market. Oil prices at six year lows are significantly impacting spot pricing and drilling activity in the U.S., and we expect this to unfavorably impact our quarterly results during the rest of fiscal 2015. Nevertheless, we believe we are positioned to successfully navigate through the down-cycle as a result of our strong balance sheet, our term contract coverage, and our modern fleet.
This is a company I have watched for some time. Although the stock is trading at a significant discount from my $99.33 calculated fair value, its free cash flow payout of 1,361% is at an unsustainable level. For now, I will continue to wait for a more opportune time to initiate a position.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was held no position in HP (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
- Phillips 66 Dividend Stock Analysis
- AFLAC Incorporated (AFL) Dividend Stock Analysis
- Cisco Systems: A 5-Star Very Strong Stock
- P&G Has Paid A Dividend Every Year Since 1891 And Increased It 57 Consecutive Years
- Target Corporation Dividend Stock Analysis
- More Stock Analysis
Tags: HP, NBR, NE, RIG,