On Mar 19, 2013, we upgraded onshore contract driller
Nabors Industries Ltd.
) to Neutral from Underperform. Our new investment thesis is
supported by a Zacks Rank #3 (Hold).
HELMERICH&PAYNE (HP): Free Stock Analysis
NABORS IND (NBR): Free Stock Analysis Report
PATTERSON-UTI (PTEN): Free Stock Analysis
TESCO CORP (TESO): Free Stock Analysis Report
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Why the Upgrade?
With leading positions in most natural gas and oil-based shale
plays, Nabors is a big player in the North American land drilling
market. The company reported better-than-anticipated December
quarter profits last month and also recently announced that it
will start paying quarterly dividends.
Nabors, which ranks ahead of
Patterson-UTI Energy Inc.
) as the largest North American onshore contractor, has a large,
high-quality fleet of drilling and workover rigs. Over the years,
the company has grown through cash flow reinvestments and
acquisitions. In the process, Nabors has not only increased its
rig fleet, but also extended its geographic reach and diversified
its operating assets beyond land rigs.
Barbados-based Nabors reported fourth quarter 2012 non-GAAP
earnings per share of 30 cents on Feb 19, beating the Zacks
Consensus Estimate of 29 cents by a penny. Results were driven by
strong operational execution.
We welcome Nabors' recent announcement to start paying out a
portion of its earnings in the form of shareholder dividends. We
believe that the dividend start-up not only highlights Nabors'
commitment to create value for shareholders but also underlines
the energy equipment supplier's confidence in its business going
However, we remain concerned about weak natural gas fundamentals,
which are likely to limit the company's ability to generate
positive earnings surprises. Nabors' fairly debt-heavy balance
sheet also remains an issue.
Stocks That Warrant a Look
While we expect Nabors to perform in line with its peers and
industry levels in the coming months and advice investors to wait
for a better entry point before accumulating shares, one can look
Helmerich & Payne Inc.
) as good buying opportunities. These oil and natural gas
drilling equipment suppliers - sporting a Zacks Rank #1 (Strong
Buy) - have solid secular growth stories with potential to rise
significantly from current levels.