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Nabors (NBR) to Post Q4 Earnings: What's in the Offing?

Zacks Equity Research

Nabors Industries Limited NBR is set to release fourth-quarter 2018 results after the closing bell on Feb 26.

The drilling contractor delivered weaker-than-expected results in the last reported quarter amid high expenses and lower international margins.

Nabors has a dismal earnings surprise history, having lagged the Zacks Consensus Estimate in each of the last four quarters, with average of 38.37%. This is depicted in the graph below:

Nabors Industries Ltd. Price and EPS Surprise

Nabors Industries Ltd. Price and EPS Surprise | Nabors Industries Ltd. Quote

Our model does not predict a positive earnings surprise for Nabors in the fourth quarter of 2018 as well. Let’s see which way are top and bottom-line estimates headed this time.

The Zacks Consensus Estimate for fourth-quarter loss is pegged at 16 cents, having remained stable over the past 30 days. However, the estimate reflects narrower loss than the prior-year figure of 34 cents a share. The Zacks Consensus Estimate for revenues is pegged at $810 million compared with $709 million in the prior-year quarter.

Let’s see how things are shaping up for this announcement.

Factors at Play

Crude plunged from a multi-year high of $76.40 a barrel in early October to below $45 in late December amid weakening demand, supply glut along with concerns of economic slowdown. This is likely to adversely affect the demand for drilling activities. In the face of crashing WTI oil prices during the quarter, the company may suffer from cancellation of orders from customers, which may in turn impact revenues. As it is, it is bearing the brunt of reduced dayrates, diminishing backlog and operational inefficiencies. Moreover, pipeline crisis in the United States and Canada are making things worse. Consequently, we expect the company’s U.S. Drilling and Canadian Drilling segment to underperform in the to-be-reported quarter.

Nonetheless, the company is expected to witness improvement in Drilling Solutions and Rig Technologies segments. Nabors’ high-performance rigs are expected to experience higher demand from the international market. On a further encouraging note, the company announced last month that it has managed to reduce net debt by $230 million in the fourth quarter, thanks to robust cash flow generation.

While we expect soft contribution from the company’s U.S. and Canadian Drilling segments, increased activities from international markets, along with improved performance from Drilling Solutions and Rig Technologies unit are likely to provide cushion to the stock.

Earnings Whispers

Our proven model does not show that Nabors will likely beat estimates in the upcoming quarterly release. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat the consensus estimate. That is not the case here as you will see below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, stands at +10.46%. This is because the Zacks Consensus Estimate for loss per share is pegged at 16 cents, wider than the Most Accurate Estimate of 14 cents per share. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: However, Nabors’ Zacks Rank #4 (Sell), when combined with a positive ESP, makes surprise prediction difficult.

As it is, we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some firms from the energy space that you may want to consider on the basis of our model, which shows that these have the right combination of elements to post an earnings beat in the upcoming releases:

Denbury Resources Inc. DNR has an Earnings ESP of +2.86% and a Zacks Rank #3. The company is anticipated to release quarterly earnings on Feb 27. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Southwestern Energy Company SWN has an Earnings ESP of +6.06% and a Zacks Rank #3. The company is expected to release quarterly numbers on Feb 28.

Par Pacific Holdings, Inc. PARR has an Earnings ESP of +18.87% and a Zacks Rank #2. The company is expected to release quarterly earnings on Mar 5.

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