zacks helmerich & payne,

8/11/2019 Zacks Helmerich & Payne,

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20 14 Zacks Investment Research, All Rights reserv ed. www.Zacks.com 111 North Canal Street, Chicago IL 60606

Helmerich & Payne, Inc. (HP -NYSE) SUMMARY

SUMMARY DATA

Risk Level * Below Avg.

Type of Stock Large -BlenIndustry Oil&Gas -DrZacks Industry Rank * 105 out of 267

Current Recommendation OUTPERFORMPrior Recommendation Neutral

Date of Last Change 12/12 /201 3

Current Price ( 02/27 /14) $96.91

Target Price $11 6.00

We are maintaining our Outperform recommen dation Helmerich & Payne, thanks to an impressiveperformance during the Oct -Dec period. Fiscal fiquarter results were buoyed by a robust intern ationland drilling business. T he company is a leading drillingcontractor with activities in the U.S. and overseas.Supported by a superior and diversified drilling fleet,together with a healthy financial profile, we expectHelmerich & Payne to sustain its profitability over theforeseeable future. We believe its technologicalladvanced FlexRigs will continue to benefit from anupswing in U.S. land drilling activity and the shift to

complex onshore plays that require highly intensivesolutions.

52-Week High $97.19 52-Week Low $56.25 One -Year Return (%) 50.76 Beta 1.22 Average Daily Vo lume (sh) 1,350,148

Shares Outstanding (mil) 107 Market Capitalization ($mil) $10,383 Short Interest Ratio (days) 8.22 Institutional Ownership (%) 39 Insider Ownership (%) 4

Annual Cash Dividend $2. 50Dividend Yield (%) 2.5 8

5-Yr. Historical Growth Rates Sales (%) 17.1 Earnings Per Share (%) 17.5 Dividend (%) 44.7

P/E using TTM EPS 16.7

P/E using 201 4 Estimate 16.4 P/E using 201 5 Estimate 15.1

Zacks Rank *: Short Term 1 3 months outlook 1 Strong Buy * Definition / Disclosure on last page

ZACKS CONSENSUS ESTIMATES

Revenue Estimates (In millions of $)

Q1 Q2 Q3 Q4 Year (Dec) (Mar) (Jun) (Sep) (Sep)

2012 733 A 770 A 820 A 829 A 3,152 A 2013 845 A 838 A 840 A 865 A 3,388 A 2014 889 A 8 79 E 912 E 916 E 3,596 E 2015 3,849 E

Earnings Per Share Estimates (EPS is operating earnings before non -recurring items, but including employee

stock options expenses) Q1 Q2 Q3 Q4 Year

(Dec) (Mar) (Jun) (Sep) (Sep)

2012 $1.29 A $1.13 A $1.37 A $1.36 A $5.15 A 2013 $1.40 A $1.36 A $1.44 A $1.4 4 A $5.6 4 A 2014 $1.56 A $1.44 E $1.51 E $1.42 E $5.93 E 2015 $6.43 E

P rojected EPS Growth - Next 5 Years % N/A

February 28, 201 4
http://www.zacks.com/


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Equity Research HP | Page 2

OVERVIEW

Incorporated in 1940, Helmerich & Payne Inc. (HP) is engaged in the contract drilling of oil and gas wellsin the U.S. and internationally. The company supplies drilling rigs, equipment, personnel, and camps on acontractual basis to explore for and develop oil and gas from onshore areas and from fixed platforms,tension -leg platforms, and spars in offshore areas. Helmerich & Payne s contract drilling businessconsists of three reportable business segments: U.S. land drilling, offshore drilling and international landdrilling.

U.S. Land Drilling: As of Sep 30, 2013, the company s U.S. land drilling business consisted of 30rigs available for work. Helmerich & Payne conducts its domestic land drilling primarily in Oklahoma,California, Texas, Wyoming, Colorado, Louisiana, Mississippi, Pennsylvania, Utah, Arkansas, NewMexico, and North Dakota. During fiscal 2013 (fiscal year ends on Sep 30 th), U.S. land operationscontributed approximately 82% of the company s operating revenues.

Offshore Drilling: The domestic offshore drilling unit s key assets include 9 platform rigs (8 undecontract ). Helmerich & Payne carries out offshore drilling in the Gulf of Mexico, offshore of Calif orniaTrinidad, and Equatorial Guinea. This unit contributed 7% of operating revenue s in fiscal 20 13.

International Land Drilling: The international land segment is active in Ecuador, Colombia,Argentina, Bahrain and Tunisia. It has 29 rigs, including 9 in Argentina, 7 in Columbia, and 6 iEcuador . In fiscal 2013, international land drilling accounted for 11% of Helmerich & Payne soperating reven ue s.

Additionally, Helmerich & Payne is involved in the ownership, development, and operation of commercialreal estate properties, as well as the research and development of rotary steerable technology. Thecompany s property portfolio includes a shopping center and multi-tenant industrial warehouseproperties, as well as approximately 210 acres of undeveloped real estate land.

Operating Revenue by Segment (FY 2013)

U.S. Land Drilling Offshore Drilling International Land Drilling


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REASONS TO BUY

Helmerich & Payne is a major land and offshore drilling contractor in the western hemisphere,having the youngest and most efficient drilling fleet. The company specializes in shallow to deepdrilling in oil and gas-producing basins of the U.S. and in drilling for oil and gas in internationallocations. Helmerich & Payne remains relatively unscathed from any economic turmoil, as thecompany s major work contracts are with well capitalized oil majors and the larger independent oilcompanies . Additionally, term contracts and shale drilling demand for its rigs have helped Helmerich

& Payne maintain a relatively high level of utilization.

We believe Helmerich & Payne s technologically-advanced FlexRigs are the key to its success,helping to increase its count of active rigs and maintain relatively strong daily-rate margins evenduring times of market uncer tainty . The company s proprietary FlexRig design makes the rigs movefaster than conventional rigs, drill quicker and more efficiently, and allows for a safer operatingenvironment. 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.

The company s modest capital expenditure requirements and strong balance sheet have been realassets in this highly uncertain period for the economy. Leverage is low with a debt- to-capitalizationratio of 1.7 % as of Dec 31, 2013. Helmerich & Payne has always been extremely conservative with

the allocation of capital and the use of leverage on its balance sheet. This not only insulates thecompany during uncer tain times, but also led to the generation of $ 737 million in profit for the fiscayear 201 3, despite volatile prices and credit restrictions .

Helmerich & Payne recently approved a raise in its quarterly cash dividend to $0625 per share($2.5 0 per share annualized), representing an increase of 25% over the previous payout. The latesdividend hike not only highlights the company s commitment to create value for shareholders butalso underlines Helmerich & Payne s strong cash generation capabilities.

Furthermore, Helmerich & Payne s strong contract drilling backlog, which now stands at around $3 .billion, not only reflects steady demand from its customers but also offers long-term earnings andcash flow visibility.

RISKS

Helmerich & Payne s results are exposed to oil and gas prices, which are inherently volatile andsubject to complex market forces. Any significant reduction in energy prices could depress the levelof exploration and production activity, resulting in a corresponding decline in demand for thecompany s services.

The pace of new term contract orders have weakened considerably, while newbuild awards havealso been hard to come by due to flat rig demand and stiff price competition. This will continue toweigh on the company s fortunes in t he near -to-medium term.

Helmerich & Payne has operations in several international regions, which accounted forapproximately a tenth of its consolidated operating revenues during fiscal 2013. As such, thecompany is exposed to risks associated with doing business abroad. Such risks include embargoesand/or expropriation of assets, exchange rate risks, terrorism and political/civil sentiment.


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The company s operations are subject to a number of operational risks, including inclement weather,blowouts and well fires. These hazards could adversely affect Helmerich & Payne s drillingoperations and seriously damage/destroy the equipment involved, thereby reducing the company srevenues, earnings and cash flows .

RECENT NEWS

First Quarter 201 4 Results

On Jan 30 , 2014 , Helmerich & Payne reported an impressive first quarter of fiscal 2014 (three monthsended Dec 31, 2013), owing to better drilling activities. Quarterly earnings per share from continuingoperations (excluding special items) came in at $1.56, beating the Zacks Consensus Estimate of $1.45.Compared with the year-ago adjusted profit, the results increased 11.4%. Revenues stood at $889.2million, up 5.3% from the first quarter of fiscal 2013 and also surpassed our projection of $865.0 million.

Segment Performance

U.S. Land Operations: During the quarter, operating revenues totaled $731.7 million (82.3% of total

revenue), up 5.1% year over year. Average rig revenue per operating day was $28,468, up 1.5%, whileaverage rig margin per day increased marginally 0.8% to $15,534, on a year- over -year basis. Utilizatiolevels increased to 84% (from 82% in the first quarter of fiscal 2013). The segment s operating incomeimproved (by 7.1%) from the year -earlier quarter to $250.9 million.

Offshore Oper ations: Helmerich & Payne s offshore revenues were up 2.3% year over year to $59.1million. Daily average rig revenue increased a nominal 0.6% to $62,306, while average rig margin perday climbed 6.5% to $27,449. This led to a 23.3% rise in the segment s operating income from the prior-year quarter, to $18.5 million. Quarterly rig utilization was 89%, flat with the year -ago quarter.

International Land Operations: International land operations recorded revenues of $95.3 million, upfrom $87.3 million in the prior-year quarter. Average daily rig revenue was $38,433, up 8.2%, while rigmargin per day was $10,342, up from $8,400 recorded in the year-ago quarter. The segment generatedoperating profit of $12.8 million compared with $9.1 million in the first quarter of fiscal 2013. Utilizationlevel was however 82%, down from 85% in the corresponding period, last year.

Capital Expenditure & Balance Sheet

During the first quarter of fiscal 2014, Helmerich & Payne spent $140.6 million on capital programs. As ofDec 31, 2013, the company had approximately $581.4 million in cash, while long-term debt stood at$80.0 million (debt -to-capitalization ratio of 1.7%).

Agreement

Helmerich & Payne has reported that it inks deals with four upstream firms. Per the agreementsHelmerich & Payne will construct and operate nine extra FlexRigs in the U.S.

Outlook

Helmerich & Payne is expected to invest roughly $950.0 million in fiscal 2014, owing to FlexRigs risingdemand. In the U.S. Land Operations business unit, Helmerich & Payne projects rig revenue per day forthe second quarter of fiscal year 2014 to remain almost same with the previous quarter.


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VALUATION

We believe Helmerich & Payne s technologically- advanced FlexRigs are the key to its success, helping toincrease its count of active rigs and maintain relatively strong daily-rate margins even during times ofmarket uncertainty. Other positives in the Helmerich & Payne story are its relatively conservative financialpolicy and the quality of its client base, which mostly includes well-capitalized oil majors or largeindependents.

This is reflected in our continued Outperform recommendation .

Helmerich & Payne s current trailing 12-month earnings multiple is 1 6.7 X, compared with the 33.2industry average and 1 8.1 X for the S&P 500. Over the last five years, Helmerich & Payne s shares havetraded in a range of 5.0X to 22.3X trailing 12 -month earnings.

Our $11 6 price objective is based on a 201 4 P/E multiple of 19.6 X.

Key Indicators

P/ EF1

P/E F2

Est. 5 -Yr EPS Gr%

P/CF(TTM)

P/E (TTM)

P/E 5-Yr

High (TTM)

P/E 5-Yr Low

(TTM) Helmerich & Payne Inc. (HP) 16.4 15.1 N/A 9.6 16.7 22.3 5.0

Industry Average 24.2 11.4 17.6 7.0 33.2 65.6 7.2 S&P 500 15.7 14.8 10.7 14.8 18.1 27.7 12. 0

Noble Corp. (NE) 8.6 6.6 13.0 4.8 10.8 35.5 4.0 Ensco plc (ESV) 8.0 7.0 18.0 6.0 8.6 19.8 3.0 Diamond Offshore Drilling Inc. (DO) 10.5 8.0 18.0 6.3 9.9 15.0 6.2 Patterson -UTI Energy Inc. (PTEN) 22.1 17.4 -0.9 5.2 20.1 73.0 3.6

TTM is trailing 12 months; F1 is 201 4 and F2 is 201 5, CF is operating cash flow

P/B LastQtr.

P/B 5-Yr High

P/B 5-Yr Low

RO E (TT M)

D/E Last Qtr.

Div Yield Last Qtr.

EV/EBITDA (TTM)

Helmerich & PayneInc. (HP) 2.1 2.3 1.0 14.1 0.0 2.6 6.2

Industry Average 1.5 1.5 1.5 7.1 0.9 2.2 10.4 S&P 500 4.8 9.8 2.9 25.4 2.1


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Earnings Su rprise and Estimate Revision History


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DISCLOSURES & DEFINITIONS

The analysts contributing to this report do not hold any shares of HP. The EPS and revenue forecasts are the Zacks Consensus

estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personalviews as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly,relat ed to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in thisreport is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as toaccuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meetthe particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as anoffer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have aposition long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for thesecurities it covers. Outperform - Zacks expects that the subject company will outperform the broader U.S. equity market over the next six totwelve months . Neutral - Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelvemonths. Underperform - Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. Thecurrent distribution of Zacks Ratings is as follows on the 1064 companies covered: Outperform - 17.9%, Neutral - 74.9%, Underperform 6.7%.Data is as of midnight on the business day immediately prior to this publication.

Our recommendation for each stock is closely linked to the Zacks Rank , which results from a proprietary quantitative model using trends inearnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The modelassigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. ZacksRank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of acom pany s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264 . In terms oinvestment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. Indetermining Risk Level , we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on eachstock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk , while the 5 th group has the highestvalues and are designated High Risk . Designations of Below -Average Risk , Average Risk , and Above -Average Risk correspond to thesecond, third, and fourth groups of stocks, respectively.

Analyst Nilanjan Choudhury Nilanjan Choudhury QCA

Lead Analyst Nilanjan Choudhury Reasons for Update 1Q14 Earnings Update

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