C $11 - Toronto symbol PD

PRECISION DRILLING CORP. $11 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 276.1 million; Market cap: $3.0 billion; Price-to-sales ratio: 1.7; No dividends paid since February 2009; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract-drilling services to land-based oil and gas producers in Canada, the U.S. and Mexico.

The company continues to see strong demand for its Super Series horizontal-drilling rigs. Horizontal drilling involves drilling development wells sideways or at an angle to reach isolated pockets of oil or gas. Horizontal drilling works well in situations where conventional drilling is either impossible or too expensive.

Precision is now building 49 Super Series rigs, up from its earlier plan to build 30. It will also decommission 49 of its older rigs. Retiring the older rigs will cost Precision between $100 million and $120 million.

The company now expects to have 338 rigs at the end of 2011: 188 in Canada, 144 in the U.S. and six in other countries. It also plans to spend $1.14 billion in 2012 on new rigs and other upgrades.

Precision is borrowing most of the money it needs to build the new rigs. That’s why its long-term debt jumped from $804.5 million at the end of 2010 to $1.3 billion on September 30, 2011. Even after this increase, Precision’s debt is still a reasonable 43% of its market cap. The company also holds cash of $501.1 million, or $1.82 a share.

Meanwhile, Precision earned $83.5 million, or $0.29 a share, in the third quarter of 2011. That’s up 48.3% from $56.3 million, or $0.20 a share, a year earlier. Revenue rose 37.3%, to $492.9 million from $359.2 million.

The stock trades 11.7 times Precision’s likely 2011 earnings of $0.94 a share. Earnings in 2012 could rise to $1.35 a share. That would give Precision a p/e ratio of just 8.1.

Precision Drilling is a buy.

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