Bear of the Day: Nabors Industries (NBR)
Nabors Industries NBR provides drilling and related services for land-based and offshore oil and natural gas wells in the United States and internationally. The company offers solutions such as tubular running, directional drilling, rig instrumentation, and drilling optimization software. Nabors Industries markets approximately 300 rigs for land-based drilling operations and 29 rigs for offshore platform operations.
The Hamilton, Bermuda-based company provides several intelligent products including ROCKit and SmartSLIDE, which are two advanced directional steering control systems; SmartNAV, a collaborative guidance and advisory platform; and RigCLOUD, which provides the infrastructure to deliver real-time insight into operations across its rig fleet.
Despite a relatively constructive operating environment, the oilfield services provider continues to be exposed to overcapacity and pricing pressure. Its rig count is down since the start of 2023, and customers seem to be drilling fewer wells. Volatile crude oil prices are likely to persist in 2024, and a high debt-to-capitalization ratio restricts the company’s financial flexibility.
The Zacks Rundown
Nabors Industries, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Oil and Gas – Drilling industry group. This industry ranks in the bottom 5% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the past several months:
Image Source: Zacks Investment Research
Stocks in the bottom tiers of industries can often be potential candidates for short positions. While individual stocks have the ability to outperform even when they are part of a lackluster industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Despite a rebound in stocks with the Dow and S&P 500 hitting new all-time highs, NBR shares have not been participating lately. The stock has experienced considerable volatility over the past year. NBR hit a 52-week low earlier this month, all while the general market eclipses its former highs.
Recent Earnings Misses and Deteriorating Outlook
NBR has fallen short of earnings estimates in each of the last four quarters. The company most recently reported a fiscal third-quarter loss in October 2023 of -$5.40/share, missing the -$0.20/share consensus EPS estimate by a whopping -2,600%.
Nabors Industries has posted a trailing four-quarter average earnings miss of -817.39%. Consistently falling short of earnings estimates is a recipe for underperformance, and NBR is no exception.
The company has been on the receiving end of negative earnings estimate revisions as of late. The fourth-quarter outlook has been slashed by -105.26% in the past 60 days. The fiscal Q4 Zack Consensus Estimate stands at -$0.78/share, the second consecutive (expected) loss in what has been a consistent string of misses.
Image Source: Zacks Investment Research
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
As illustrated below, NBR stock is in a sustained downtrend. Notice how shares have plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows, with no respite from the selling pressure in sight. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.
Image Source: StockCharts
NBR stock has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. Nabors Industries would have to make a surprising move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. NBR shares have fallen more than 56% in the past year alone, all while the major indexes have shown strength.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to hit new highs anytime soon. The fact that NBR stock is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
Highlighted underperformance bodes well for the bears. Potential investors may want to consider including this stock as part of a short or hedge strategy. Bulls will want to steer clear of NBR shares until the situation shows major signs of improvement.
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Nabors Industries Ltd. (NBR) : Free Stock Analysis Report
