Precision Drilling Stock Could Hit the Mark as Energy Services Recover

Precision Drilling Corporation (TSX:PD) trades an EV/EBITDA multiple of 6.6x, lower than its peer average of 11.3x

SmallCapPower | May 16, 2018: Precision Drilling Corporation (TSX:PD, NYSE:PDS) is a leading provider of oil and natural gas drilling and related services and products. The Company offers customers access to an extensive fleet of contract drilling rigs, directional drilling services, well service & snubbing rigs, camps, rental equipment, and water treatment units backed by a comprehensive mix of technical support services and skilled, experienced personnel. Precision Drilling operates in two business segments – Contract Drilling Services and Completion and Production Services.

Precision Drilling trades at a market capitalization of $1.41B with an EV/EBITDA multiple of 6.6x, compared with its peers, which trade at a multiple of 11.3x. Since its business operations are driven by advanced technology, its stock could see more upside with a continued recovery in the energy services sector.

Investment Thesis

  • Wide spectrum of services
  • Advanced technology-driven operations

Wide-spectrum of services

Precision Drilling offers a wide spectrum of services as seen below.

Precision Drilling is the most active land drilling contractor in Canada. The Company operates 256 drilling rigs and 210 service rigs in the United States and Canada, as well as 13 drilling rigs in Mexico, Georgia, Saudi Arabia, Iraq, and Kuwait. In the United States, the Company offers turnkey drilling solutions to customers along the Gulf Coast and has established itself as a market leader. Outside of Canada and the United States, Precision Drilling operates as Grey Wolf International.    

Advanced technology-driven operations

Precision Drilling employs advanced technology for their operations and offers customers drilling expertise through their innovative Super Series Rigs. The Super Series rigs – Super Single, Super Triple-1200 and Super Triple-1500 – continue to set new benchmarks for safety, performance, and speed. The Company plans to strengthen its high-performance-oriented strategy by deploying Process Automation Controls (PAC), Directional Guidance Systems (DGS) and Drilling Apps on a wide-scale basis.

Using DGS, Precision Drilling has drilled 57 wells YTD, equivalent to the number of wells the Company drilled in all of 2017. More than 75% of these jobs utilized reduced crews, as compared to 30% in 2017. Also, 21 rigs are currently running with PAC technology; the Company has drilled 137 wells with this technology in 2018, compared with 154 in 2017.

Outlook and Valuation

In terms of valuation, Precision Drilling Corporation trades at market capitalization of $1.41B with an EV/EBITDA multiple of 6.6x, compared with its peers, which trade at a multiple of 11.3x. The Company’s stock looks attractive for the long haul on the back of its wide-spread operations in North America, as well as its utilization of technology for cost efficiency and effectiveness. Precision Drilling has an average price target of $5.55, representing a 12.12% upside.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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