Analyst Note| Preston Caldwell |
Patterson's fourth-quarter revenue improved 7% sequentially, as the company benefited from industrywide improvement in U.S. shale activity. However, the revenue gain lagged key activity metrics, with U.S. drilling and fracking activity up around 25%. This likely reflects the impact of weakened pricing, somewhat offsetting improved volume. Lower pricing also makes sense in light of the sequential drop in adjusted operating income to negative $123 million from $114 million in the prior quarter. At the segment level, the sequential revenue gain was driven by pressure pumping and directional drilling, whereas the decrease in operating income was driven entirely by contract drilling. Our fair value estimate and no-moat rating are unchanged following the results.