We issued an updated research report on Nabors Industries Ltd.NBR on May 10. The company is well positioned on a sound mix of high performance rigs and new rigs operating in key shale plays. However, escalating costs and expenses have increased the leverage of the company, which is likely to affect its credit metrics.
Nabors currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Nabors is the leading North American land drilling contractor, with 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.
The company is well positioned on its fleet of technologically-advanced rigs in key shale plays. The company also enjoys solid exposure to oil plays with presence in the Bakken and Permian plays. Moreover, demand for new rigs is way more strong compared to older commodity units, given their ability to drill more challenging wells in the emerging resource plays. As such, these rigs are better suited to command higher dayrates and utilization than conventional rigs.
With the commodity prices ticking up, big oil explorers, on the back of greater certainty, will now be able revive spending on drilling activities that would increase rig count. This, in turn, will drive demand for oilfield equipment, boosting Nabors' revenues, earnings and cash flow.
However, Nabors has been grappling with lower margins in its international market as is reflected in its wider-than-expected loss in first-quarter 2018. We expect international concerns to prevail as well.
We are concerned about operational inefficiencies due to rising direct costs which have hurt the financials of the company. Further, Nabors shares lost nearly 19.8% over the past year, against the Zacks Oil & Gas Drilling industry's gain of 4.9%.
Stocks to Consider
Players in the energy space that warrant a look are BP plc BP , WildHorse Resource Development Corp. WRD and W&T Offshore, Inc. WTI . BP and WildHorse sport a Zacks Rank #1 (Strong Buy), while W&T Offshore carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
BP managed to beat the Zacks Consensus Estimate in three of the last four quarters.
WildHorse is expected to see year-over-year earnings growth of 288.4% in 2018.
W&T Offshore, Inc. (WTI) will likely witness earnings growth of 7.1% in 2018.
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