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- Patterson-UTI Energy (PTEN +6.1%) is upgraded to Overweight from Equal Weight with a $12 price target at Morgan Stanley, while Helmerich & Payne (HP +3%) is downgraded to Underweight from Equal Weight with a $27 target at the same firm, but both stocks trade higher as crude oil rallies for a second straight day.
- Analyst Connor Lynagh sees a 9%-12% downside to 2022-23 consensus estimates for Helmerich & Payne vs. 2%-5% upside for Patterson-UTI as well as a more constructive near-term free cash flow outlook.
- Lynagh points to Patterson-UTI's pressure pumping business as having assets that are "meaningfully under-utilized" with outsized growth in the business relative to the drilling businesses of HP and PTEN, which he says is not fully reflected in the relative valuations of the two companies.
- Along with Patterson-UTI, Morgan Stanley taps Liberty Oilfield Services (LBRT +3.6%), NexTier Oilfield Solutions (NEX +4%) and Cactus (WHD +2.7%) as top plays in the sector.
- Helmerich & Payne recently reported a larger than expected Q4 loss while warning of rising costs in oilfield services.