Is HP Attractive as Low Valuation Meets Persistent Earnings Pressure?

Helmerich & Payne, Inc.HP trades at a discount to several sales-based valuation benchmarks after a sharp recovery in operating activity. The discount, though, comes with an earnings profile that remains weak.

Cost reductions, asset sales and debt repayment could improve cash generation, while Argentina and offshore work add growth avenues. Persistent losses, Middle East uncertainty and execution demands keep the risk-reward balance from looking decisively bullish.

HP Trades Below Key Sales Valuation Benchmarks

HP trades at 1.05X forward 12-month sales, below the Zacks sub-industry at 3.09X and the Zacks Oils-Energy sector at 1.4X. It also sits below its five-year median of 1.26X, which points to a meaningful relative discount.

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That valuation gap is not enough by itself to make the shares attractive. The company still carries a weaker earnings outlook, so investors must weigh the lower sales multiple against the possibility that profitability takes longer to recover.

HP's Earnings Outlook Remains the Main Constraint

Fiscal third-quarter 2026 adjusted loss was 11 cents per share, versus the Zacks Consensus Estimate for earnings of 11 cents. Revenues exceeded $1 billion, but the earnings miss showed that better activity has not yet translated into consistent bottom-line strength.

Image Source: Helmerich & Payne

The consensus outlook remains difficult. Fiscal 2026 earnings are projected at a loss of $1.32 per share, followed by a loss of $2.56 in fiscal 2027, even as sales are expected to rise from about $3.99 billion to $4.26 billion.

HP's Cost Cuts and Deleveraging Could Lift Cash Flow

Management expects enterprise optimization efforts to reduce annualized corporate costs by $40 million by the end of fiscal 2027 and targets more than $160 million of asset-sale proceeds. Fiscal third-quarter free cash flow reached $98 million.

HP has already repaid its $400 million term loan ahead of schedule and is focused on retiring the $350 million bond due at the end of 2027. Lower debt and a leaner cost base could expand financial flexibility if operating conditions remain supportive.

HP's Growth Case Still Depends on Execution

Argentina is a key growth market, with multiyear contracts expected to lift HP's FlexRig count there to 15 by around fiscal third-quarter 2027. Offshore visibility is another support, with backlog reaching $3.6 billion after a four-year Norway renewal, while a second FlexRobotics package was operating in the Permian.

Peer activity shows that these markets remain competitive. Patterson-UTI Energy, Inc. PTEN, a drilling and completion services provider, signed a multiyear agreement to lease two rigs for Argentina's Vaca Muerta. Nabors Industries Ltd. NBR operates a global land-drilling platform and also emphasizes drilling automation and software.

Execution risk remains material. Middle East disruptions widened fiscal fourth-quarter international direct-margin guidance to $25 million-$45 million, while fiscal 2026 gross capital expenditures are projected at $270 million-$310 million and cash taxes at $150 million-$180 million. FlexRobotics returns are still not fully disclosed.

HP's Hold Signal Fits the Valuation Trade-Off

The valuation discount gives HP some appeal, but the earnings outlook and execution risks argue against treating the shares as a straightforward bargain. The current setup looks better suited to investors willing to wait for clearer evidence of sustained profitability and cash-flow improvement.

HP carries a Zacks Rank #3 (Hold), along with a Value Score of C, Growth Score of C, Momentum Score of F and VGM Score of D. The C scores suggest middling value and growth characteristics, while the F Momentum Score and D VGM Score indicate a weaker overall style profile. Those signals support a more selective stance rather than an aggressive bullish call.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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