RBC Cuts Helmerich & Payne, U.S. Silica On Valuation; Sees Little Upside

In two separate reports issued Friday, RBC analysts led by Kurt Hallead downgraded Helmerich & Payne and U.S. Silica Holdings to Sector Perform, trimming their price targets from $83.00 to $55.00 and from $28.00 to $20.00, respectively.

Helmerich & Payne

The experts commented, “The next 12 months continue to be a trading environment for service stocks until investors have a higher degree of conviction that oil can break out of the $40-60 band.”

In an environment where crude is range bound, they believe land drilling overcapacity puts a cap on day rates and cash margins. So, given Helmerich & Payne’s already high valuation, upside seems quite limited.

Related Link: Crude Oil Giving Back Gains For The Week

U.S. Silica Holdings

RBC’s reduced oil price projection drives its position regarding the cycle recovery in NAM, which “will be pushed out beyond 2016,” the analysts believe. In such an environment, they see limited upside to U.S. Silica’s profitability given their outlook for reduced activity and “a continuing oversupplied sand market.”

The firm based the downgrade of the stock on its “preference for defensive names balanced with selective beta exposure to company specific execution.”

Having said this, Hallead and his team added, “We believe SLCA has competitive advantages in the frack sand market, and we think its low cost structure and superior supply chain management will be defensible long-term.”

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