Citi downgrades Patterson-UTI to Neutral on pricing risk

Citi analyst Scott Gruber downgraded Patterson-UTI to Neutral from Buy with a price target of $6.50, down from $8. The response by public exploration and production companies to the pullback in crude prices has been more pronounced than originally anticipated, the analyst tells investors in a research note. The firm tallies 18 rigs being cut across public operators. Citi also senses greater desire by E&P companies to push for rate concessions for higher spec drilling and frac equipment, given that tubular costs likely rise, and sand is unlikely to deflate much further. While the stocks are down, reductions in rates of 5%-10% “greatly compresses” free cash flow, Citi contends. Thus, it downgraded Patterson-UTI (PTEN) and Helmerich & Payne (HP) pending clarity on where rates land this downcycle.