One-glance verdict
Undervalued
$177.38 our estimate vs market $105.47
Wall Street consensus: $103.77 (-41.5% lower than our fair-value estimate)
41% below our estimate, below the bear case
Fundamentals snapshot
Precision Drilling Corporation
PDS · NYQ · Energy · Oil & Gas Drilling
Current price
$105.47
52-week range
$56.10 - $106.03
Market cap
$1.33B
Balance sheet
Stretched
1.83x Concerning
Net debt $450.94M. Interest coverage shows how many times profit covers the interest bill.
What stands out
1 Reward
2 Risks
1 rewards · 2 risks
- Reward Free cash flow was positive in 4/10 years.
- Risk Return on equity was -1.9% last year — the company lost money on shareholders' equity.
- Risk Insider ownership is only 3.7% (peer median: 4.5%).
What this company does
Precision Drilling Corporation
Precision Drilling Corporation provides services like drilling new oil and gas wells and maintaining existing ones for energy companies. Their main money comes from these contract drilling services, where they get paid to do the actual work of drilling. This is important because it directly shows how much demand there is for them to help energy companies find and produce oil and gas.
How the company got here
Precision Drilling Corporation was founded in 1951 and started as a small onshore drilling company with just one rig. [6] Over the decades, it grew significantly, expanding its fleet and services. [6] A key moment was its acquisition by Cypress Drilling in 1987, which led to substantial growth. [3] The company has undergone strategic shifts, including selling off some divisions and reorganizing, and has also made significant acquisitions, such as its U.S. rival Grey Wolf Inc. in 2008, which greatly expanded its presence in the United States. [3] Precision Drilling is now the largest onshore drilling contractor in Canada and a significant player in the U.S. market. [1, 3]
What it actually does
Precision Drilling provides essential services to companies that explore for and produce oil and natural gas. [2, 12] Think of them as the company that drills the holes in the ground to access these energy resources. [2, 12] They operate a large fleet of specialized drilling rigs and offer a range of services related to drilling, completing, and maintaining wells. [2, 12] Their customers are the oil and gas exploration and production companies that need these services to find and extract energy. [2, 12]
Contract Drilling Services
This is the core of Precision Drilling's business, where they focus on the actual drilling of wells. [2, 5] They provide the heavy machinery, known as drilling rigs, and the expertise to operate them for oil, natural gas, and even geothermal energy projects. [2, 5] This segment also includes activities like procuring and distributing oilfield supplies, and even manufacturing and repairing drilling equipment, making it a comprehensive service for drilling operations. [2, 5] This part of the business is the largest contributor to the company's revenue. [2]
Completion and Production Services
This segment focuses on the services needed after a well has been drilled. [2, 5] Precision Drilling provides service rigs for tasks like completing a well (making it ready for production), performing workovers (maintenance or repairs on existing wells), and even for well abandonment (safely closing down a well). [2, 5] They also offer equipment rentals, and essential services like camp and catering for the crews working at remote well sites. [2, 5] This segment plays a crucial role in supporting the entire lifecycle of an oil and gas well. [2, 5]
What management is betting on now
Precision Drilling's current strategy, called "High Performance, High Value," is centered on leveraging its large fleet of advanced rigs, which are enhanced with technologies like Alpha™ for automation and EverGreen™ for environmental solutions. [1, 6] Management is focused on generating strong free cash flow (the cash a company has left after paying for its operations and investments) by controlling costs and optimizing operations. [8, 10] A key priority is reducing debt and returning capital to shareholders through share repurchases (when a company buys back its own stock) and dividends. [1, 9] They are also investing in upgrading their existing rig fleet and developing new technologies to maintain their competitive edge in the energy services market. [7, 10]
Price history
How the share price has moved
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Is it cheap or expensive?
Fair value $177.38 vs current price $105.47
Wall Street consensus is the average analyst price target: $103.77 (-41.5% lower than our fair-value estimate).
Our most-likely fair value is $177.38 a share — about 68.2% above today's price of $105.47, so the stock currently looks cheap (undervalued).
Is it drowning in debt?
Stretched
Net debt $450.9M. Interest coverage 1.8x.
Net debt
$450.94M
Interest coverage
1.83x
Precision Drilling Corporation's profit covers its interest bill about 1.8 times over. which is stronger than most peers shown here and 2 peers sit below 1x, which is the danger zone where profit does not fully cover the interest bill.
Stretched
Worse cushion
Baseline
Better cushion
PDS
BASELINE
Precision Drilling Corporation
Total debt $498.34M Interest coverage 1.83x This is the baseline the peer rows are being compared against.
Total debt $1.86B Interest coverage 2.15x +18% vs PDS Carries about 1.2x more debt cushion than PDS.
Total debt $1.29B Interest coverage -0.56x -100% vs PDS This peer has almost no interest-payment cushion compared with PDS.
Total debt $2.13B Interest coverage 1.22x -33% vs PDS Carries about 1.5x less debt cushion than PDS.
Total debt $684.66M Interest coverage 0.55x -70% vs PDS Carries about 3.3x less debt cushion than PDS.
What you should know
The case for and against PDS
1 Reward
2 Risks
Rewards
-
Free cash flow was positive in 4/10 years.
Risks
-
Return on equity was -1.9% last year — the company lost money on shareholders' equity.
-
Insider ownership is only 3.7% (peer median: 4.5%).
The numbers
All the key metrics, grouped by purpose
Tap any ? icon to learn what it means.
Valuation
How expensive the stock looks
P/E (TTM)
—
Forward P/E
12.22x
P/B
1.21x
P/S
0.69x
EV/EBITDA
4.23x
PEG ratio
33.32x
Profitability
How much profit each dollar creates
Gross margin
30.9%
Operating margin
3.2%
Net margin
-1.7%
ROE
-1.9%
ROA
3.0%
Health
Liquidity and balance-sheet strength
Debt / equity
0.43x
Current ratio
1.46x
Quick ratio
1.29x
Total debt
$498.34M
Total cash
$47.40M
Growth
How the business has been compounding
Revenue TTM
$1.37B
Revenue 5Y CAGR
4.5%
EPS TTM
-1.74
EPS 5Y CAGR
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Cash flow
How much cash the business throws off
Operating CF TTM
$295.20M
Free CF TTM
$106.81M
FCF margin
7.8%
Dividend
Shareholder payout
Yield
0.0%
Payout ratio
0.0%
Last ex-div date
2015-11-04