HP - Valens Credit Report - 2021 10 04
Credit markets are materially understating credit risk with a YTW of 1.313% relative to an Intrinsic YTW of 3.663% and Intrinsic CDS of 268bps. Meanwhile, Moody's is understating HP's fundamental credit risk with its Baa1 credit rating four notches higher Valens' HY1 (Ba2) credit rating.Earnings Call Forensics™ analysis of the firm's Q3 2021 earnings call highlights that management may be concerned about rig pricing, operating costs, and cost efficiencies amidst rig reactivations. Additionally, they may be exaggerating the number of rigs expected to come back online by EOY and the potential for E&P drilling budgets to be pushed higher by current oil prices. Furthermore, management may lack confidence in their ability to meet their gross margin and cash balance guidance and drive margins higher with price increases. They may also lack confidence in their ability to gain international traction for their automation solutions and continue advancing their technical capabilities. Finally, management may be exaggerating the potential of their energy storage investments and the capability of the closed loop approach to be a viable source of renewable energy.
Helmerich & Payne provides drilling services and technologies for oil and gas exploration and production companies. The company's contract drilling business segments are: United States Land, which operates in Colorado, Louisiana, Ohio, Oklahoma, Montana, New Mexico, North Dakota, Pennsylvania, Texas, Utah, West Virginia and Wyoming; Offshore, which operates in United States federal waters in the Gulf of Mexico; and International Land, which has rigs in Argentina, Bahrain, Colombia and United Arab Emirates. The company's drilling technology-based business segment, Helmerich & Payne Technologies, is focused on developing, promoting and commercializing technologies designed to improve the drilling operations.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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