Helmerich & Payne: "No Payne, No Gain"
05/10/2017 2:45 am EST
The stock has been consolidating in the 65-70 range for the last three months, ever since its launch from 62 to 83 in the month following the presidential election ended with a painful thud. HP is down 3% since recommended it in mid-March.
But while my expectations for a positive reaction from tomorrow’s results are modest, the long-term outlook for this shale resurgence play continues to brighten.
This is an industry leader with no net debt, one that generated cash at the bottom of the slump last year. It now starts a new energy upswing with growing market share, pricing power and meaningful technological and financial advantages over rivals.
The June 16, 2017 $60 calls were recently offered at $6.80, requiring an HP gain of just 1.5% over the next seven weeks for a buyer to break even. I like those odds and am adding this trade to our options portfolio.
This is a volatile stock with short-term downside risk, of course, but Helmerich & Payne’s strong position in a ramping industry and its resilient 4.3% dividend yield should provide plenty of support over the term of this in-the-money call option.