Patterson: Really Drilling

By Gene G. Marcial

Gushing Up
Shares of Patterson-UTI Energy (PTEN ) have sprung up since early June, when they dipped to 14 after a poor second quarter. Stock in the No. 2 provider of onshore-drilling services to oil-and-gas producers is now at 17.36 -- and some pros see it hitting 25.

"Drilling activity is on the cusp of a dramatic move-up, to a point where Patterson could raise day rates," says William Harnisch, chairman of Forstmann-Leff Associates, which owns shares. Demand for drilling gear has bumped up lately, reflecting increased spending by the big producers, notes Harnisch. "The rig count could hit the high levels seen in the third quarter of 2001," he adds. Patterson has 361 rigs, mainly in New Mexico, Oklahoma, Texas, Utah, and western Canada. Today's high prices for crude are partly driving the hike, says Harnisch.

Magnus Fyhr of broker Jefferies (JEF ) says the stock is "attractively valued" at 15.5 times his 2005 earnings forecast of $1.09 a share. His 2004 estimate is 65 cents, vs. 2003's 34 cents. Fyhr rates Patterson a buy, with a 12-month target of 25. Harnisch says earnings could soar to $3 if booming demand for rigs outstrips supply. If that happens, he says, the stock could easily shoot up to 35.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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