Actions of Helmerich & Payne (NYSE: HP) fell nearly 38%, enough in line with the monumental drop in benchmark oil prices amid concerns over another infectious wave of the coronavirus pandemic. The company provides exploration and production services to upstream oil and gas operators in the United States and abroad. Notably, national operations contribute 92% of total revenues. In recent filings, the company highlighted the improvement in the number of platforms in the United States with higher capital expenditure expectations for upstream companies in the coming quarters. Given HP’s strong domestic presence and the likelihood of increased production volumes in the United States despite fears of another infectious wave, Trefis believes the stock has considerable upside potential. Our strengths of our interactive dashboard Helmerich & Payne during the 2008 recession versus now.

Timeline of the 2020 crisis so far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 01/31/2020: WHO declares global health emergency.
  • 02/19/2020: Signs of effective containment in China and hopes of monetary easing from major central banks help S&P 500 reach record high
  • 03/23/2020: S&P 500 34% drop of the maximum level observed on February 19, as cases of Covid-19 accelerate outside China. It doesn’t help that oil prices collapse in mid-March amid the Saudi-led price war
  • From 03/24/2020: S&P 500 recovers 103% from lows seen on March 23, 2020, with the Fed’s multibillion-dollar stimulus package keeping the economy afloat during the extended lockdown and the vaccination campaign allowing things to gradually return to near-normal levels

In contrast, here is how HP and the broader market fared during the 2007/2008 crisis.

Timeline of the 2007-08 crisis

  • 10/01/2007: Approximate pre-crisis peak of the S&P 500 index
  • 09/01/2008 – 10/01/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
  • 03/01/2009: Approximate low point of the S&P 500 index
  • 12/31/2009: Initial recovery to pre-accelerated decline levels (around 9/1/2008)

Helmerich & Payne Stock vs. Performance of the S & P500 during the 2007-08 Financial Crisis

HP stock fell from levels of around $ 52 in September 2008 (pre-crisis peak) to levels of around $ 24 in March 2009 (as markets bottomed out), implying that HP stock is down 54% from its pre-crisis peak. It recovered from the 2008 crisis to levels of around $ 40 in early 2010 – increasing 68% between March 2009 and January 2010. In comparison, the S & P500 index initially fell 51% to following the recession before recovering by 48% in January 2010.

Lower benchmark prices to weigh on HP revenue and profitability

Helmerich & Payne’s revenues fell 28% from $ 2.5 billion in 2018 to $ 1.8 billion in 2020 as the pandemic caused demand to drop and benchmark prices to drop. While the profit margin declined further due to a $ 500 million impairment charge, the company’s balance sheet declined 17% (year-over-year) in 2020. restrictions due to the novel variant of the coronavirus again led to a deep dive. In particular, expectations of an oil supply exceeding demand in the coming quarters should exert downward pressure on benchmark prices.

CONCLUSION

Phases of the Covid-19 crisis:

  • Beginning to mid-March 2020: Fear of the rapid spread of the coronavirus epidemic is reflected in reality, the number of cases accelerating in the world
  • End of March 2020: social distancing measures + confinements
  • April 2020: Fed stimulus suppresses short-term survival anxiety
  • May-September 2020: Resumption of demand, with the gradual lifting of blockages – no more panic with the number of cases seeming to have reached a plateau
  • October 2020-February 2021: unprecedented surge in Covid cases force a new round of lockdowns across the country
  • Since March 2021: The current vaccination campaign and the gradual reopening are leading to a demand improvement – the buoyant market sentiment

Given the company’s cautious investment plan and the likelihood of growth in oil and gas production volumes in the country, Trefis believes the stock has considerable upside potential.

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Return Dec 2021
MTD [1]
2021
YTD [1]
2017-21
Total [2]
HP Return -35% -7% -72%
Return of the S&P 500 -2% 21% 103%
Trefis MS Portfolio Return -3% 40% 283%

[1] Monthly cumulative and annual cumulative at 12/06/2021
[2] Total cumulative returns since 2017

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