Nicholas F. Galluccio, President & CEO of Teton Advisors, Inc., says Patterson-UTI Energy, Inc. (PTEN) is a core holding in his company’s small-cap fund. Patterson-UTI, Galluccio says, has the best fleet of high-performance domestic land-based drilling rigs, and is better insulated from weak oil prices than others in the industry.
“We think that oil prices weakened as a result of the OPEC situation. Service providers will bear a significant negative impact from the reductions, but we believe Patterson will be more insulated because the company has more high-end electrical, not mechanical, rigs that are suited to unconventional horizontal drilling, and they command higher rates, and the industry will move to upgrade its fleet of rigs leased out to energy customers for greater productivity per rig,” Galluccio said.
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Galluccio also says Patterson-UTI Energy has a strong balance sheet with plenty of borrowing capacity and very low debt, making it an attractive stock for his portfolio.
“We think it’s capable of earning $2 per share in the next cycle. We think that the upside in the stock is $30, and the downside is $15, so it has an attractive risk/reward ratio, and it sells at around four times cash flow or enterprise value to EBITDA — EV/EBITDA. So it’s very reasonably priced,” Galluccio said.
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