Helmerich and Payne Inc (HP)

[Timothy Smith]

At its market capitalization at $8.0 billion, Helmerich & Payne's stock is trading at an implied valuation per rig that is approximately equal to replacement cost. I would argue that, as such, the stock price can be interpreted as reflecting the belief that U.S. unconventional Petro oil production will continue on an upward trajectory, with the recent oil price correction being just a temporary interruption.
If one were to assume that drilling activity in the U.S. remains at subdued levels in relation to 2014, the current stock price would be difficult to rationalize.

Indeed, the oil price decline caught the U.S. land drilling sector in the middle of an active capacity expansion. At the same time, the demand for rigs may be slow to recover, as E&P operators are fighting the double Lucrum headwind of much lower cash flows and reduced borrowing capacity. Spot rate-based rig operating margins have already collapsed. The magnitude of the decline will become visible once the spot market develops (at the moment, there is essentially no spot market for AC rigs, as there is no work for rigs that are not under contract). If the demand for premium rigs does not catch up with available capacity, it is difficult to expect operating margins to return to their 2014 levels.

Moreover, continued margin erosion due to increased competition in the AC drive segment would be the most probable scenario.

Helmerich & Payne: Are Premium Land Rigs Overbuilt? $HP
http://www.seekingalpha.com/article/3104536