Helmerich & Payne Inc Valuation – June 2016 $HP

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Helmerich & Payne Inc (HP) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Helmerich & Payne, Inc. is engaged in contract drilling of oil and gas wells for others. The Company operates in the contract drilling industry. The Company’s contract drilling business consists of three segments: U.S. Land, Offshore and International Land. The Company is also engaged in the ownership, development and operation of commercial real estate and the research and development of rotary steerable technology. Its real estate investments are located within Tulsa, Oklahoma, and include a shopping center containing approximately 441,000 leasable square feet, multi-tenant industrial warehouse properties containing approximately one million leasable square feet and approximately 210 acres of undeveloped real estate. The Company provides drilling rigs, equipment, personnel and camps on a contract basis. The Company’s subsidiaries include Helmerich & Payne International Drilling Co. and Helmerich & Payne de Venezuela, C.A.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of HP – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $7,396,238,778 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.93 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -19.61% Fail
6. Moderate PEmg Ratio PEmg < 20 20.52 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.55 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.93 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.45 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

HP value Chart June 2016

EPSmg $3.34
MG Growth Estimate -2.05%
MG Value $14.72
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $48.41
MG Value based on 0% Growth $28.38
Market Implied Growth Rate 6.01%
Current Price $68.51
% of Intrinsic Value 465.53%

Helmerich & Payne, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.87 in 2012 to an estimated $3.34 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.01% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Helmerich & Payne, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

HP Charts June 2016

Net Current Asset Value (NCAV) -$7.22
Graham Number $0.00
PEmg 20.52
Current Ratio 3.93
PB Ratio 1.55
Current Dividend $2.75
Dividend Yield 4.02%
Number of Consecutive Years of Dividend Growth 20


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $1,460,377,000
Total Current Liabilities $371,328,000
Long-Term Debt $492,919,000
Total Assets $7,025,105,000
Intangible Assets $0
Total Liabilities $2,243,005,000
Shares Outstanding (Diluted Average) 108,466,000

Earnings Per Share History

Next Fiscal Year Estimate -$0.74
Sep2015 $3.87
Sep2014 $6.46
Sep2013 $6.79
Sep2012 $5.34
Sep2011 $3.99
Sep2010 $1.45
Sep2009 $3.32
Sep2008 $4.34
Sep2007 $4.27
Sep2006 $2.77
Sep2005 $1.23
Sep2004 $0.05
Sep2003 $0.18
Sep2002 $0.63
Sep2001 $1.42
Sep2000 $0.82
Sep1999 $0.43
Sep1998 $1.00
Sep1997 $0.85
Sep1996 $0.74

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.34
Sep2015 $5.35
Sep2014 $5.66
Sep2013 $4.90
Sep2012 $3.87
Sep2011 $3.24
Sep2010 $2.99
Sep2009 $3.57
Sep2008 $3.31
Sep2007 $2.42
Sep2006 $1.32
Sep2005 $0.63
Sep2004 $0.43
Sep2003 $0.65
Sep2002 $0.88
Sep2001 $0.97
Sep2000 $0.75

Recommended Reading:

Other ModernGraham posts about the company

Helmerich & Payne Inc Valuation – November 2015 Update $HP
Dividend Growth Stocks for the Intelligent Investor – November 2015
10 Undervalued Companies for the Defensive Dividend Stock Investor – November 2015
10 Companies Benjamin Graham Would Invest In Today – October 2015
Dividend Growth Stocks for the Intelligent Investor – October 2015

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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