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Why Is Nabors (NBR) Down 14.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Nabors Industries (NBR). Shares have lost about 14.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Nabors due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Nabors Posts Wider-Than-Expected Q2 Loss, Sales Top

Naborsreported second-quarter 2021 loss from continuing operations (excluding special items) of $18.01 per share, wider than the Zacks Consensus Estimate of a loss of $16.61 as well as the year-ago loss of $14.45. This underperformance was primarily due to weaker-than-expected sales at the Canadian Drilling segment.

Quarterly revenues of $489.27 million beat the Zacks Consensus Estimate of $465 million, attributable to better-than-expected sales from both the Drilling Solutions unit and the Rig Technologies unit. However, the top line declined from the year-ago level of $535.97 million.

Year over year, Nabors’ adjusted EBITDA fell from $153.8 million to $117.3 million.

Segmental Performance

U.S. Drilling generated quarterly operating revenues of $161.6 million, down 7.01% from the year-ago level of $173.8 million but surpassed the Zacks Consensus Estimate of $154 million owing to increase in average Lower 48 rig count. The segment recorded an operating loss of $20.86 million, narrower than the year-ago loss of $23.4 million.

Canadian Drilling’s revenues of $12.3 million in the quarter under review increased from the year-ago figure of $3.6 million. However, the same missed the Zacks Consensus Estimate of $13.4 million. The segment’s operating loss came in at $2.61 million, narrower than the year-ago quarter’s loss of $5.8 million.

International Drilling’s operational revenues of $255.3 million decreased from the year-ago quarter’s sales of $301.1 million but outpaced the Zacks Consensus Estimate of $235 million, attributable to new contracts in Colombia and the reactivation of drilling rigs that had been idled in Saudi Arabia for quite some time. While the segmental operating loss came in at $8.44 million in the reported quarter, the prior-year quarter reported a profit of $276,000.

Revenues from the Drilling Solutions rose 18.1% to $39.11 million in the second quarter from $33.1 million a year ago. The same outpaced the Zacks Consensus Estimate of $39.10 million, attributable to increased activity across all service lines.  Performance drilling software and casing running services were the primary contributors to this improvement. Moreover, the unit’s operating income of $6.5 million rose from the year-ago profit of $1.7 million.

Revenues from the Rig Technologies segment climbed 2.9% to $34.6 million from the prior-year level of $33.6 million. The metric also surpassed the Zacks Consensus Estimate of $26.20 million on a more balanced sales mix of maintenance and capital equipment. Moreover, the segment’s operating loss narrowed to $692,000 from the prior-year loss of $1.5 million.

Financials

Total costs and expenses declined to $655 million from $669.5 million in the year-ago quarter, reflecting lower depreciation costs and interest expenses.  

As of Jun 30, 2020, the company had $399.9 million in cash and short-term investments, and a long-term debt of $2.82 billion with total debt-to-total capital of 75.1%.

Nabors generated free cash flow of $67.9 million in the second quarter.

Guidance

Nabors’ third-quarter 2021 average Lower 48 rig count is anticipated to be in line with the second-quarter level, which is at 64 rigs.

This Hamilton-based entity’s International Drilling segment’s third-quarter 2021 rig activity is estimated to decline slightly. The company expects September-quarter adjusted EBITDA for Drilling Solutions to increase from the June-quarter results.

Capital expenditures for 2021 are projected to reach above $300 million with around $100 million funded by SANAD to support the rig newbuild program.

Despite the constraints provided by the coronavirus Delta variant, Nabors anticipates a significant improvement in the oilfield segment fundamentals during the second half of 2021. The firm expects to make higher progress on the basis of its financial targets set for this year, courtesy of its exceptional staff, unrivalled global fleet capabilities and an expanding technology portfolio.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 11.55% due to these changes.

VGM Scores

Currently, Nabors has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Nabors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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