I'm Buying RPC Inc, a Small-Cap Energy Firm Poised for Growth Under Trump
A strong balance sheet and solid cash flow management make this oil field name a potential breakout star.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
What's that I hear? Is it another "Stocks Under $10" opportunity knocking? Let's explore.
On Thursday morning, RPC Inc RES posted the firm's fourth quarter financial results. For the period ended December 31, RPC Inc posted a GAAP EPS of $0.06 on revenue of $335.361 million. The top-line print, while reflecting a year-over-year contraction of 15%, managed to beat Wall Street's expectations, while that bottom-line number fell a penny short of what Wall Street was looking for. The stock is catching a Thursday beat-down, suffering a 6% loss so far, in response. Is this firm worth a look? Let's explore.
Who the Heck Is RPC Inc?
RPC Inc is an Atlanta, Georgia based holding company of several oilfield services companies. Inside the RPC (remember, the stock symbol is RES), are Cudd Energy Services, Cudd Pressure Control, Thru Tubing Services and Patterson Services. Between the four companies, RPC provides a wide range of oilfield services and equipment to primarily independent oil and gas companies.
The firm aids in exploration, production and development of properties. Operations are mostly U.S.-based, with facilities in the Gulf of America (formerly Gulf of Mexico), upper Midwest, southwest, Appalachian Mountain region and Rocky Mountain region. There are smaller operations outside of the U.S.
Technical services provided by the firm include pressure pumping, tools maintenance, coiled tubing and snubbing. Support services provided by the firm include tool rental for both on and offshore drilling as well as completion and workover activities. RPC also offers oilfield cementing services in both the Permian basin and upper Midwest.
RPC Inc Operations
We mentioned above that revenue contracted 15% to $335.361 million. Operating income contracted sharply (-78.6%) to $10.517 million. Within the firm. the Technical Services segment delivered 15.3% revenue contraction and a 77.1 contraction in operating income, while the Support segment delivered 11.7% revenue contraction and a 48.9% contraction in operating income. The GAAP EPS print of $0.06 compares poorly to the $0.19 reported for the year-ago comparison.
RPC Inc CEO Comments
President and CEO Ben Palmer commented in the press release, regarding the quarter:
“We finished 2024 with a slight sequential improvement in pressure pumping results, while the rest of the business was generally soft, reflecting typically lower fourth quarter customer activity. The improved utilization of our pressure pumping assets, off a weak third quarter, was driven by tier four dual fuel asset demand. While there is some general energy sector optimism regarding the new presidential administration, the oilfield services industry remains highly competitive.”
And, on the future:
"Looking forward in 2025, we are optimistic about our new products and services in downhole tools gaining traction after early positive results in 2024. We plan to continue investing in innovation across the business and project capital spending in the range of $150 million to $200 million this year. Pursuing acquisitions to expand our business remains another key strategic priority, and we remain focused on targeting high cash flow, profitable operations with strong customer bases. Our debt-free balance sheet remains strong and liquid, with over $300 million in cash at year end to fund organic investments, potential acquisitions and capital returns to our investors.”
RPC Inc Fundamentals
For the full year 2024, operating cash flow printed at $349.386 million. Out of that number came capex spending of $219.93 million, leaving free cash flow of $129.456 million. Out of this number, the firm paid out cash dividends of $34.433 million to shareholders. The rest moved to the balance sheet.
Turning to the balance sheet, RPC Inc ended the period reported with a cash position of $325.975 million and inventories of $107.628 million. That puts current assets at $732.842 million. Current liabilities add up to $181.913 million, which includes no short-term debt and $45.376 million in unearned revenue, which is not a true financial obligation. This leaves the firm's headline current and quick ratios at 4.03 and 3.44, respectively, which is very strong. Adjusted for those unearned revenues and these current and quick ratios rise to 5.27 and 4.58. That's almost absurdly strong, especially for a firm going through a rough patch.
Total assets amount to $1.386 billion including just $64.667 in goodwill and other intangibles. At less than 5% of total assets, this is outstanding. Total liabilities less equity comes to $308.198 million. There is no long-term debt on the books.
My Thoughts on Buying RPC Inc
Here you have a small oil services firm that is coming off of successive lousy quarters and is being punished for it, as the worm has turned. Not that anything can be promised, but leadership in the U.S. has changed hands and just in the nick of time for firms like this.
Additionally, the firm has continued to generate positive free cash flow, continued to pay its shareholders out of that free cash flow without being reckless, and has perhaps one of the cleanest balance sheets (no debt whatsoever) in the energy business. By the way, the stock trades at just 14-times forward-looking earnings and the dividend yields 2.49%. See that in a lot of $6 stocks? Maybe, but this one can afford to do so and easily sustain that dividend where it is.
Readers will see that RPC, Inc has been mired in a falling-wedge pattern since late 2022. A falling wedge, I remind you, is a pattern of bullish reversal. The stock tried to break out last week and failed but has not come close to making a new post December low.
Relative strength is weak. The daily MACD is not bullish. Clearly, there are arguments against, but you and I both know that I am a sucker for a strong balance sheet and responsible cash flow management. The bullish technical pattern is just icing on the cake. I will wait for this article to be published, and you have time to read it, as I do not front run my own pieces before they go public.
That said, I am going to buy this stock today. Am I perfect? No. Do I suffer losses? Yes. Am I the one guy who gave Wall Street Palantir Technologies PLTR, Rocket Lab USA RKLB and SoFi Technologies SOFI when they were all trading in the middle-single digits? Yes.
Lightyears ahead of the community of analysts. I see this stock as a low-risk, potentially decent reward proposition.
At the time of publication, Guilfoyle was long PLTR, RKLB and SOFI equity.
