Morgan Stanley Adjusts Ratings in Favor of Land Drillers HP, NEX and CLB

September 26, 2022 11:08 AM EDT
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Price: $50.26 +1.05%

Rating Summary:
    20 Buy, 14 Hold, 5 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 2 | Down: 19 | New: 24
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Morgan Stanley analyst Connor Lynagh upgraded shares of Helmerich & Payne (NYSE: HP) to Equal-Weight and downgraded NexTier Oilfield Solutions (NYSE: NEX) to Equal-Weight and Core Laboratories (NYSE: CLB) to Underweight in a note Monday.

The analyst explained that the NAm cycle is maturing, and cash generation/returns are taking primacy over EBITDA revisions, while service companies adopting payout models "will be rewarded" in their view. As a result, Morgan Stanley has tilted its ratings in favor of land drillers.

"Following substantial activity and pricing growth, we think the biggest debate in NAm services is how far service companies can push 2023 pricing, and what they will do with 2023 FCF. Leaving pricing aside for the
moment, we think that shareholder returns frameworks will be increasingly adopted by NAm OFS companies," added Lynagh, who also lifted Helmerich & Payne's price target to $55 from $48.

"The NAm services industry has potential to better delineate capital returns and reinvestment frameworks to prove to the market that another cyclical capacity overbuild is not underway. We are accordingly shifting our ratings skew to favor FCF revisions and capital return potential."

By Sam Boughedda

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