Oil prices seem to have stabilized around the $60/bbl mark, but
that's not nearly enough to fuel a recovery across the service space.
With many E&P companies settling into a "lower for longer" view of
oil prices, pressure is flowing downstream to the service companies as
producers look to cut costs and maximize whatever returns are available
to them at $60/bbl oil. That's not an inspiring backdrop for Parker Drilling (NYSE:PKD) and it is likely to mean more pressure on utilization and rates in the coming quarters.
Parker
Drilling shares do still seem too cheap. A full-cycle FCF model
suggests that today's price is about right, but EBITDA and ROE/BV-based
approaches argue for a price above $5. I expect Parker to see worsening
revenue and margin trends throughout 2015, and 2016 may not be much
better, but the company's liquidity situation is pretty good and
management seems to have taken a realistic approach to getting through
this down-cycle. Unless you believe that the company will go bankrupt
and/or that it will never manage more than a token level of earnings,
this could be worth a closer look.
Read more here:
Parker Drilling May Be Undervalued, But It Will Need Time
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