Though Pioneer Energy Services Corp. (NYSE: PES) may be taking a beating from lower oil prices, some analysts on Wall Street still have confident on the company’s prospects.
The analysts at Jefferies recently upgraded their rating on the stock to BUY from HOLD. On top of that, the analysts raised their price estimate on the stock to $6 from $5.
What’s the source of the optimism?
According to analyst Brad Handler of Jefferies, the nearly 24% pullback in the shares of Pioneer Energy from their July peak indicate a decent upside potential in the price of the stock. Handler also believes that PES has a number of options to deal with the leverage issue on its balance sheet.
One of the avenues that Handler says Pioneer Energy Services Corp. (NYSE: PES) could use to strengthen its balance sheet is the sale of assets. Such transactions could generate cash that the company can funnel to reducing its indebtedness. Pioneer Energy balance sheet reflected total debt of $387.6 million at the end of 2Q2016. The other option for Pioneer Energy to repair its balance sheet is equity issuance.
The existence of options for Pioneer Energy to strengthen its balance sheet despite pressure in drilling services business makes Jefferies bullish on the prospects of the company.
How Pioneer Energy Services Corp (NYSE: PES) fared in 2Q
Pioneer Energy Services Corp (NYSE: PES) generated revenue of $62.3 million in 2Q2016, which shrank 17% from the previous quarter and 54% from the same quarter last year. The topline figure also missed the consensus estimate of $65.6 million. With that, Pioneer Energy posted adjusted EPS loss of $0.31, which was better than the consensus that called for EPS loss of $0.32 for the quarter.
Pioneer Energy Services Corp (NYSE: PES) reported that its drilling services revenue declined 16% YoY and production services revenue fell 18% YoY. Lower rig utilization and soft average servicing prices contributed to the decline.
However, the management exudes confidence that production service revenue will rise by 10% to 15% in the current quarter (3Q2016).