We came across a bullish thesis on Precision Drilling Corporation (PDS) on Substack by Nugget Capital Partners. In this article, we will summarize the bulls’ thesis on PDS. Precision Drilling Corporation (PDS)’s share was trading at $42.09 as of April 15th. PDS’s trailing and forward P/E were 7.48 and 9.04 respectively according to Yahoo Finance.
A drilling rig fueled by the energy and expertise of the oil & gas exploration and production company.
Precision Drilling is Canada’s largest land driller, presents a compelling and timely opportunity in the oilfield services sector despite broader concerns surrounding commodity price weakness and energy market volatility. While adding exposure to oilfield services in a declining oil price environment may seem counterintuitive, the nuances of Precision’s business, including its strategic regional dominance, superior rig technology, and resilient end markets, paint a far more attractive picture than headline oil price action would suggest. At the core of the thesis lies Precision’s dominant market share in two of Canada’s most strategically important basins: the Montney and Clearwater. These basins are underpinned not only by robust production economics but also by structural demand drivers, such as LNG export development and the unique role of condensate in Canadian bitumen blending. In both basins, Precision’s proprietary rigs—Super Triples in the Montney and Super Singles in the Clearwater—are the preferred tools of major exploration and production companies. Clients like Tourmaline, Arc Resources, Tamarack Valley, and Canadian Natural are executing active growth programs supported by long-term drilling activity and high-return capital deployment, lending visibility and resilience to Precision’s earnings base.
Beyond Canada, Precision has around 30% exposure to U.S. shale, where service margins have weakened in recent quarters amid reduced drilling intensity and elevated efficiency. However, these challenges are now well-known and largely priced into the stock. U.S. operators have been able to sustain production with fewer rigs, but that trend has likely hit its limit, and either a gradual uptick in demand or exhaustion of high-return acreage could spur a rebound in drilling activity. While Precision’s U.S. business has seen some softness, Canadian operations continue to outperform. Canadian rig counts are up year-over-year, and high-spec rig utilization remains strong, particularly in Alberta and British Columbia where Precision’s operations are concentrated. Importantly, this strength is not hypothetical—recent data from March 2025 confirms a notable year-over-year increase in both drilling licenses and new spuds. These indicators are especially meaningful for forecasting short-term activity and revenue momentum. With E&P operators remaining cautious about releasing premium rigs and crews due to tight service availability, demand for Precision’s assets should remain robust even in a moderately weaker macro backdrop.
Story Continues
Management, led by CEO Kevin Neveu, has guided to flat year-over-year EBITDA, emphasizing that most high-spec rigs are already contracted and deployed, with meaningful visibility for 2025. Free cash flow guidance remains strong at $241 million, and Precision continues to focus on disciplined capital allocation and operational efficiency. Analysts estimate 2025 EBITDA in the range of $520–539 million, which supports attractive valuation metrics when compared to the company’s current market capitalization following a steep sell-off. The dislocation in share price has occurred despite Precision not being materially affected by the commodity downturn, particularly on the revenue side, as Canadian activity continues to exceed expectations. This disconnect presents a notable opportunity for investors to capitalize on both market mispricing and the cyclical trough in U.S. margins.
With no meaningful rig additions expected in Canada or the U.S., and high-end rig fleets nearly fully utilized, pricing power could return quickly as activity improves. Canadian producers remain committed to maintaining rig access given the high importance of reliability, efficiency, and crew performance. Some have even opted to pay for rigs on standby to retain access to Precision’s services. This scarcity dynamic, coupled with long-cycle LNG demand and basin-specific advantages like condensate blending, supports the durability of Precision’s Canadian earnings base. Altogether, the company’s outlook is underpinned by strong fundamentals, with significant upside optionality if U.S. operations recover or if further consolidation in oilfield services leads to pricing improvements.
From a valuation perspective, Precision Drilling trades at historically depressed multiples despite having among the highest-quality assets in North America and robust free cash flow generation. This creates a favorable risk/reward dynamic for equity investors. Should Canadian momentum persist and the U.S. rebound materialize, Precision’s stock has the potential for meaningful re-rating. For now, the core Canadian business alone supports the investment case, making Precision Drilling a high-conviction bet on a misunderstood segment of the energy market with an asymmetric upside.
Precision Drilling Corporation (PDS) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 15 hedge fund portfolios held PDS at the end of the fourth quarter which was 12 in the previous quarter. While we acknowledge the risk and potential of PDS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PDS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
