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Can Helmerich & Payne (HP) Surprise Q2 Earnings?

Oil and gas contract drilling services provider Helmerich & Payne Inc. HP is set to release its second-quarter fiscal 2016 results before the opening bell on Monday, May 2.

In the preceding three-month period, the Tulsa, OK-based firm delivered a massive positive surprise of 162.50%. The outperformance came on the back of lower rig expenses in its U.S. land segment.

Coming to earnings surprise history, the company has a good record: its beaten estimates in 3 of the last four quarters with a healthy average beat of 52.38%.

Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

Low oil and gas prices have forced the top energy companies to resort to spending cuts (particularly on the costly upstream drilling projects), mainly due to lower profit margins. This, in turn, means less work for drilling contractors like Helmerich & Payne.

Not only has U.S. land drilling activity declined to levels not seen since 1999, but also the pace of new term contract orders have weakened considerably due to flat rig demand and stiff price competition. This will continue to weigh on the company’s fortunes in the near-to-medium term.

However, Helmerich & Payne’s technologically-advanced FlexRigs are the key to its success, helping it to maintain relatively strong daily-rate margins even during times of market uncertainty. The company’s proprietary FlexRig design makes the rigs move faster than conventional rigs, drill quicker and more efficiently, and allows for a safer operating environment. As such, these are better suited for the new demands of the exploration business and, therefore, command higher dayrates and utilization than rigs from other land drillers.

Finally, Helmerich & Payne’s successful cost management initiatives – in the form of lower operating expenses – are expected to boost its bottom-line and margins.

Earnings Whispers

Our proven model does not conclusively show that Helmerich & Payne will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -4.55%. This is because the Most Accurate estimate stands at a loss of 23 cents, while the Zacks Consensus Estimate is pegged narrower, at a loss of 22 cents.

Zacks Rank: Helmerich & Payne has a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

While earnings beat looks uncertain for Helmerich & Payne, here are some firms you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

Holly Energy Partners L.P. HEP has an Earnings ESP of +2.17% and a Zacks Rank #1. The partnership is likely to release earnings on May 3.

Bill Barrett Corp. BBG has an Earnings ESP of +9.09% and a Zacks Rank #2. The company is expected to release earnings results on May 5.

McDermott International Inc. MDR has an Earnings ESP of +100.00% and a Zacks Rank #2. The company is anticipated to release earnings on May 9.

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MCDERMOTT INTL (MDR): Free Stock Analysis Report
 
HELMERICH&PAYNE (HP): Free Stock Analysis Report
 
HOLLY EGY PTNRS (HEP): Free Stock Analysis Report
 
BILL BARRETT CP (BBG): Free Stock Analysis Report
 
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