Patterson-UTI Earnings: Lower Completions Activity Weighs on Top-Line Growth and Profitability

No-moat Patterson-UTI reported weaker first-quarter results, reflecting lower US oil and gas production levels, which remained in line with activity late last year. Sales dropped 5% sequentially, and adjusted EBITDA margins declined 100 basis points to 25%. The near-term shale production outlook remains somewhat tepid, and customer consolidation may present additional headwinds in the future. Currently, favorable commodities prices offer some optimism for an uptick in activity in the second half of the year, and our long-term outlook for Patterson remains unchanged overall. We also note that the firm is ahead of schedule on 2024 shareholder distributions, returning $130 million through dividends and buybacks compared with its $400 million target. We’re slightly lowering our fair value estimate to $15 from $16 following results, and shares trade at a roughly 30% discount at the time of writing.