Raising Patterson-UTI's FVE to $15 as Strength in Drilling and Completions Activity Persist

After incorporating Patterson-UTI’s full third-quarter results into our forecast, we’re raising our fair value estimate to $15 per share from $12. We forecast firmwide revenue will increase 21% per year over the next five years on average. The growth will be primarily driven by exceptionally strong activity in North American drilling and completions activity through 2023. Contract drilling and pressure pumping services together comprise nearly 90% of Patterson’s overall business. The firm has benefited from a very favorable operating environment over the past several quarters, as high demand for drilling rigs and pressure pumping equipment has kept the North American market operating near full capacity. We expect the supply-demand imbalance will foster continued margin expansion for Patterson over the next few years, and by our estimate, the firmwide operating margin will average about 13% over the next five years.