Buy H&P, not H-P
Jake is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Wait, what? That's right, HP is a fantastic investment as long as you don't accidentally put your money into H-P. I am talking about oil and gas drilling & exploration company Helmerich & Payne (NYSE: HP) and computer systems giant Hewlett-Packard (NYSE: HPQ). Unless you've been living under a rock for the past year, you've undoubtedly heard of the troubles plaguing Hewlett-Packard, but what does this have to do with a company in the drilling industry? Well, nothing. At least not if you know how to distinguish the two.
Helmerich & Payne is the fastest growing drilling company in the world by rig count, operating a fleet of 339 rigs mostly on U.S. soil. While the U.S. total active rig count has been decreasing since 2010 especially in 2012 as the count decreased by 11%, ignoring 2005 Helmerich & Payne's rigs actually have increased every year since 2001 while still maintaining above 90% efficiency.
Helmerich & Payne has one of the highest rig contracting efficiencies in the market (93% compared to industry average of 70%) while still charging well above average dayrates ($15,000 compared to industry average of $10,000). They also possess the title of largest market share in the industry, controlling nearly 14% of the market.
In their most recent earnings call, Helmerich & Payne reported record EPS of $1.48, beating estimates by 9.4%. Revenues were up 15% YoY, net income was at an all-time-high, 48 new rigs were built below budget, and CEO Hans Helmerich announced plans to increase the dividend in 2013. As 2013 expects to see total U.S. rig counts increase by at least 100, Helmerich & Payne management is confident that they will capture even more market share. How does H&P do all this? FlexRig®.
FlexRig® is a Helmerich & Payne-specific type of rig now in its fifth generation, boasting unmatched technology and innovation. The FlexRig® utilizes AC technology instead of the typical DC technology in most rigs. AC expands horsepower capabilities and lessens stall conditions in oil rigs, giving Helmerich & Payne an advantage over competitors in rig mobility. A 40-mile move would take the average land rig 161 hours to traverse, while the FlexRig® can do the same in only 57 hours. In addition to impressive mobility the FlexRig® uses horizontal drilling techniques instead of the typical vertical, which allow more oil to be pulled from each well and more efficiently. These special rigs also contain spherical self-cleaning mud tanks, which perform at a higher level than the square mud tanks normally used throughout the industry. Mud tanks are used in land-based drilling to store drilling fluid. The name comes from the first mud tanks that were simply holes dug into the mud.
Helmerich & Payne's share price is up more than 11% YTD, and boasts a 42% 5-year performance. This compares to an average Oil & Gas Drilling industry return of 0.8% YTD and -2.06% 5-year.
Hewlett-Packard, on the other hand, has been struggling since 2010, its share price falling more than 60% from April 2010 highs. Net Income fell into the red for 2012, with the company losing $12.5 billion - more money than it has ever made in one year. According to E*Trade, Hewlett has an EPS growth rate that is less than 88% of peer companies. All of these factors contributed to Hewlett-Packard's announcement in May 2012 that they were firing 27,000 employees to cut down on costs. Even further, and perhaps Packard's worst misstep yet, Meg Whitman has announced an $8 billion write-down with $5 billion going towards inaccurate financial reports in Autonomy, the company Hewlett bought in 2011. These inaccuracies contained things such as $200 million in revenues that were improperly recorded. Ex-Autonomy CEO Mike Lynch has publicly shamed the Hewlett-Packard management, claiming that the write-downs are intended to cover over management's shortcomings. Lynch, in an interview with the Wall Street Journal, said "H-P is looking for scapegoats, and I'm afraid I'm not looking to be one of those". While these negatives are all largely due to problems in Hewlett-Packard's management and their lack of innovation in an era dominated by tablets and cloud computing, the other HP with which they share an acronym has exceeded all expectations.
Helmerich & Payne is a fantastic investment opportunity into the drilling industry, perfectly poised to capture even more market share and grow their income statement and share price. But now, how does this relate to the disastrous Dow company Hewlett-Packard? Simply the name. If you search for news stories regarding Helmerich & Payne, you may be surprised when you find dozens of articles written about Hewlett-Packard; only the author used the wrong ticker symbol. Just remember, when you read about your new favorite oil drilling company, ignore the computers!
For more information about Helmerich & Payne, you can access their financial information on their company website hpinc.com under the Investor Relations tab.
jakepompeo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!