What happened
Shares of land rig lessor Precision Drilling (PDS -0.83%) are up 16% as of 12:15 p.m EST today, according to S&P Global Market Intelligence. The driving force behind today's surge was the company's announcement of fourth-quarter earnings that came in better than analyst estimates for the quarter.
So what
Precision Drilling reported fourth-quarter earnings, adjusted for one-time goodwill impairment costs, of 1 million Canadian dollars (US$751,000), or less than a penny per share. Analysts were expecting a CA$0.05 per share loss for the quarter. Perhaps more important than earnings was Precision's ability to generate CA$90 million in cash flow for the quarter, which it used to retire some debt early as part of the debt-reduction plans management laid out earlier this year.
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Management also noted that it has acquired contracts for 19 rigs in the U.S. from the beginning of the fourth quarter to today. Combined with the company's outlook for flat results in Canada, it should lead to a better 2019.
Now what
The biggest hurdle for Precision Drilling as a stock has been its burdensome debt load. Even though operationally it has done a great job of managing its fleet through the downturn, all of its operating profits have been sapped by interest payments. Management's announcement back in January was a sign that it is serious about getting its debt under control, which is a promising sign over the long term.
If the company can continue to churn out these better-than-expected results and a continued commitment to lowering its debt load, then Precision's stock looks cheap. There are still quite a few things out of the company's control, though, and that high level of debt is still a concern. It is certainly a stock worth watching, but there are enough questions remaining that it may not be wise to buy now.
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