Morningstar | Pressure Pumper RPC Disappoints on Only Modest Sequential Improvement in Results
No-moat pressure pumping company RPC reported somewhat disappointing second- quarter results, and the company's shares fell about 2% on the announcement. Our fair value estimate of $15 per share is unchanged for now.Revenue increased 7% sequentially, but this was merely in line with the increase in U.S. shale activity levels. Adjusted operating margin bounced back to 16% from 14% in the prior quarter, but still remains below the recent high-water mark of 20% set in the third quarter of 2017, when RPC was able to capitalize upon its spot market focus with overheated spot pricing that quarter. Management has cited stagnant overall pricing as a key contributor to failing to sustain the success of that quarter, an outlook which is unlikely to change given ongoing capacity additions in the market as well as our view that U.S. shale activity levels are currently outrunning sustainable long-term levels.
The longer that RPC has gone without matching the results it posted in the third quarter of 2017, the more investors have become disenchanted with the company. RPC’s shares have fallen nearly 50% since January, converging dramatically toward our fair value estimate. RPC’s fall has outpaced peers, but it has been accompanied by a general decline in the share prices for other pressure pumping companies--for example, industry leader Halliburton has fallen over 25% in the past two months. We have resolutely held on to our bearish thesis on pressure pumping (founded on our view that pressure pumping is a no-moat industry) for well over a year, and now the market seems to finally be vindicating our thesis.
RPC is a holding company for several oilfield services companies. The company provides oilfield services and equipment to oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the U.S., including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services provided are: Technical Services, which include pressure pumping, downhole tools, coiled tubing, snubbing, nitrogen, well control, wireline services, and fishing; and Support Services, which include rental tools, oilfield pipe inspection services, well control school and energy personnel international.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.