Precision Drilling (TSX:PD) might not sound like the flashiest name in the energy space. Yet sometimes the most boring businesses end up making the biggest moves. After a challenging year for drilling services, this Canadian oilfield contractor has been quietly building momentum. Now, the setup for the next few quarters could give the Canadian stock the jolt investors have been waiting for.
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What happened
Over the past year, Precision’s share price has been on a rollercoaster. It traded as high as $101 before tumbling more than 20% as energy markets cooled and drilling activity in the U.S. slowed. That retreat left the Canadian stock hovering in the mid-$70s, well below its peak, but also created a more attractive valuation. Shares now trade around 10 times trailing earnings and at less than one times sales. This is a steep discount for a Canadian stock continuing to generate steady profits and cash flow.
The most recent quarter showed that Precision is still in the fight. Revenue came in at $407 million, a 5% decline from a year ago, as lower U.S. and international drilling activity weighed on results. Earnings also slipped to $16 million from $21 million last year, and per-share net income fell to $1.21. On the surface, those numbers suggest softness, but the underlying story is stronger than it looks. Canada was the bright spot, where Precision actually increased activity despite a drop across the broader industry.
Management also used its cash flow wisely. Precision generated $147 million in operating cash flow during the quarter, repaid $74 million of debt, and bought back $14 million worth of stock. Year-to-date, debt reduction reached $91 million and share repurchases $45 million, putting the Canadian stock well ahead of its annual targets. Long-term debt now sits at $546 million, down sharply from over $800 million just six months ago, and leverage ratios are moving in the right direction.
Looking ahead
Looking forward, the pieces are falling into place for Precision to capture new growth. Canada’s heavy oil activity is benefiting from the Trans Mountain pipeline expansion, which finally started up in mid-2024. LNG Canada shipped its first cargo in July, and once it ramps up to full run-rate capacity, demand for Precision’s Super Triple rigs could easily outstrip supply.
In the U.S., while the rig count has been under pressure, there are hints of a turnaround. Precision increased its U.S. rig activity by 13% sequentially, even as the industry overall declined. The international side is smaller but steady. Precision averaged seven rigs overseas during the quarter, mainly in Kuwait and Saudi Arabia, and most of these rigs are locked into long-term contracts through 2027 or later.
The stock’s sharp pullback has set the stage for a potential rebound if energy markets strengthen or if the natural gas narrative gains traction. With a leaner balance sheet, steady free cash flow, and a customer base already lining up for upgraded rigs, Precision Drilling could pop higher as investors realize that this isn’t the same highly leveraged driller of past cycles. Sometimes the best opportunity comes when a stock is down but the fundamentals are pointing up. Precision looks like one of those setups today.
Bottom line
Over the last year, this Canadian stock has dropped more than 20% from its highs, but with rising Canadian heavy oil activity and LNG Canada now shipping, investors may want to pay attention. If demand for its Super Series rigs surges as expected, this oil services name might just be in for an electric rally.
