Precision Drilling (TSX:PD) Moved, What Is Driving Attention Now?

Precision Drilling (TSX:PD) just posted third quarter results that shifted it from a net loss a year ago to positive net income. This change is now drawing fresh attention to the stock’s P/S valuation.

Recent trading has been choppy for Precision Drilling. The share price fell 12.3% over the past week but still shows a 28.6% year to date share price return and a 59.7% total shareholder return over one year, which indicates that momentum has been building rather than fading.

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Precision Drilling has already delivered a strong rebound on the chart, yet the third quarter swing back to profit and a below industry P/S tag suggest the debate is just starting. How far does that valuation gap really run?

Most Popular Narrative: 19% Undervalued

Against a last close of CA$129.95, the most followed narrative pegs Precision Drilling’s fair value at CA$161.25, using a 7.4% discount rate and a detailed cash flow build that treats today’s P/S gap as only part of the story.

Recent and anticipated increases in customer demand for rig upgrades, driven by the longer term need for high spec and automated drilling to efficiently access unconventional resources, are cited as factors that could support higher average day rates and stronger rig utilization, which in turn would support revenue growth and margin expansion for Precision Drilling.

Expansion of the upgrade program, now reinforced by customer funded Super Triple and Super Single projects and by the operational record of Alpha rigs and AlphaARMS robotics, is cited as a factor that could help Precision Drilling continue lifting revenue per rig and net margins through premium pricing, efficiency gains and lower mechanical downtime.

See why 19 investors see Precision Drilling as 19% undervalued.

Result: Fair Value of CA$161.25 (UNDERVALUED)

Still, the narrative around Precision Drilling could be knocked off course if higher capital spending and the potential CA$155 million tax reassessment end up squeezing free cash flow more than expected.

Find out about the key risks to this Precision Drilling narrative.

Next Steps

With such a mixed setup around Precision Drilling, sentiment can shift quickly. Pressure test the upside and downside yourself by reviewing the 3 key rewards and 1 important warning sign.

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