Please ensure Javascript is enabled for purposes of website accessibility

Why Patterson-UTI Energy Stock Rose 10% and Then Declined 18%...All Before Lunch

By Reuben Gregg Brewer – Apr 24, 2020 at 12:41PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Patterson-UTI has been buoyed by rising oil prices, but as investors digest its earnings news, the outlook is clearly still cloudy.

What happened

Shares of energy services company Patterson-UTI Energy (PTEN -16.40%) rose out of the gate on April 24, jumping 10% at the open of trading on Wall Street. That followed days of gains, with the company's share price rising along with the price of oil. Including the early Friday gain, the stock was up roughly 50% in just five days. However, almost as quickly as the stock had jumped, it started to give back those gains and then some. By 11 a.m. the stock had fallen roughly 8% for the day. Although oil had been the driving force for the previous gains, earnings news was the likely cause of the quick change in perception as investors started to digest the company's financial results.

So what

Patterson-UTI reported a first-quarter 2020 loss of $2.28 per share. That was much worse than the $0.14 per share it lost in the first quarter of 2019. The massive loss in the current quarter included $1.83 per share in one-time impairment charges. So the loss from ongoing operations was more along the lines of $0.45 per share -- a better number, but still much worse than the year-ago period.   

An oil Well and two men writing in notebooks in the foreground

Image source: Getty Images.

Falling oil prices were the big driver of the weak earnings results, as the company's energy industry customers pulled back on their spending plans to conserve cash. This shouldn't have come as any surprise to the market, given the weak oil price environment over the past year. That said, Patterson-UTI noted that it expects the rest of the year to be even more difficult. Its rig count started to fall by the end of the first quarter as oil plunged amid oversupply issues, but the decline got even worse after the close of the three-month span. It now expects to see its rig count drop by a third in the second quarter.    

The company is working to rein in costs, as you would expect. However, that large a drop in its rig count does not augur well for the future. And since the broader oil market remains out of balance, with too much supply and too little demand, even the recent price gains in oil won't be enough to change the current trajectory of Patterson-UTI's business. 

Now what

Patterson-UTI is using the standard game plan when it comes to dealing with a fall in demand -- cut costs and preserve liquidity. Drilling for oil and natural gas is a cyclical business, so downturns aren't a surprise. However, the current hit, related to the worldwide efforts to contain COVID-19, is deep. With a global recession likely at this point, it is probably going to be a while before this energy services company's business picks up in a notable way again.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Patterson-UTI Energy, Inc. Stock Quote
Patterson-UTI Energy, Inc.
PTEN
$10.86 (-16.40%) $-2.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.