TD Cowen upgrades Precision Drilling stock on margin recovery outlook

TD Cowen upgraded Precision Drilling's stock to Buy from Hold, with a price target of C$150.00, reflecting optimism about the company's U.S. margin recovery. Analysts expect a weak third quarter of 2026, but TD Cowen believes Precision has committed to a $10,000 daily margin recovery in the fourth quarter of 2026. The firm sees this as a strong sign of management's credibility and views the target reiteration positively.

Precision Drilling is currently trading at 3.3 times 2027 estimated EBITDA, offering a 16% free cash flow yield. The stock has surged 156% over the past six months, trading at a market cap of $1.3 billion and a P/E ratio of 7.67. With drilling and completion cyclicals trading at their widest discount to premium names in over 15 years, Precision Drilling appears undervalued.

Analysts predict profitability for the company this year, and TD Cowen's confidence in this outcome is evident through the company's guidance. Precision's Super Single rigs are well-suited to the Clearwater play, while Super Triple rigs are leveraged to the Montney and Duvernay plays. The firm attributes the stock's performance to the momentum in these plays and the company's focus on technology advancements, including robotics and remote operations.

Precision Drilling reported mixed second-quarter financial results, with revenue surpassing forecasts but a loss in earnings per share due to reactivation costs and restructuring charges. However, Canadian operations set a record with 61 active rigs, and U.S. rig activity also increased significantly.