Precision Drilling (PDS) has been on a tear currently. Unfortunately, it’s downward sloping going from a a couple of billion greenback agency to 1 with a marketplace cap of slightly $350 million. This once especially esteemed driller’s inventory has been plummeting to earth ever for the reason that pop of the strength bubble. Sporting a 52 week high inventory charge of $28.89 and a five-yr excessive of over $50, one has to squint whilst it seems at it’s historic overall performance, which include in which it once turned into. Now at $2 and trade, is Precision a good buy? Looking right now high-flying stocks which have fallen to reputedly obscene lows is a common exercise among price oriented investors. Now that we’ve spotted a inventory it truly is really worth searching into, we could dig a little deeper into what Precision Drilling absolutely does.
Officially, Precision states that they “Provide agreement drilling, and crowning glory and production services to grease and natural fuel exploration and production groups in Canada and the United States. It operates in segments, Contract Drilling Services, and Completion and Production Services.” So what does that even mean? Basically Precision does things: Helps electricity companies get their oil core drilling and herbal gasoline out of the ground thru drill rigs and additionally aids the strength companies in keeping, refurbishing, and leaving their drilling sites. They offer services in essentially whatever an onshore driller might want. As of December 31, 2007, Precision Drilling operated a fleet of 232 land drilling rigs, 223 nicely of completion and workover provider rigs, 27 snubbing gadgets, 63 waste water treatment gadgets, and about 13,000 apartment items in Canada; and 12 land drilling rigs inside the United States. After studying that sentence you would possibly say “Hey it really is from 2007.” Not to worry, after pouring thru their monetary documents and reports, an investor should locate several matters, a number of them bothersome. Since the cease of 2007, Precision has been slowly retiring many rigs, dropping their rigs in carrier by using some dozen each couple months. This could appear irking due to the question in the back of why they are doing this. Are they not promoting these rigs? Is call for so low they without a doubt have to spoil rigs because protection is so high? Yes and no. It is proper that the market is terrible is you are an onshore driller. With many energy companies not being capable of produce oil and natural fuel at a income because of the disintegrate in energy charges, Precision is dealing with a dramatic slowdown in rig contracts. There is good news to this however. After a short communication with their monetary department, I uncovered that over 50% of their rigs had been contracted thru 2011. These are not flimsy might also-move-bankrupt clients both. They bring the stalwart names such as Transocean and Schlumberger, in which chances are, they aren’t going to again out in their contracts. Even in the event that they desired to, maximum in their current long-time period contracts are binding, meaning simplest except the organisation went bankrupt, they could not pull out.
Another excellent piece of information…The energy sector will come lower back…Sooner or later. I can be a year, can be several, however relaxation confident, drillers may have their day in the solar yet again. So wearing a present day p/e of 1.18x, a forward p/e of around 4x, a conservative PEG of .5, this inventory looks as if a screaming buy right? With a wholesome dividend truely to be reinstated once the power marketplace is revived, a control crew that is experienced a couple of downturns in the economy, and $50 million within the financial institution, appears even better right? Check the latest mutual fund shopping for activity too: Almost all the fund shopping for over the last couple of months has been from 4 and 5 star Morningstar rated funds. Obviously with each stock it really is been crushed down as a long way as Precision has some evident troubles. More on that during Part II soon.