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Why Hold Strategy Makes Sense for Nabors Industries Right Now
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Nabors Industries Ltd. (NBR - Free Report) is currently considered undervalued, trading at a 3.72X trailing 12-month enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA), which is significantly below the broader industry average of 16.18X.
Image Source: Zacks Investment Research
Zacks' proprietary data indicates that the company has a Value Score of A, suggesting that it is a solid choice for value investors.
While this makes Nabors seem like a bargain compared with its peers, there are important factors that investors must consider to understand the stock’s potential.
Company Description
NBR makes money by drilling wells for oil and gas companies. The company provides the equipment, expertise and services needed to extract these natural resources from the ground. While a discounted valuation can indicate a buying opportunity, this is important to assess whether NBR’s lower valuation is justified by its fundamentals, growth prospects and broader market conditions. A deeper dive into NBR’s operational and financial strengths, as well as its risks, is important to understand whether the company is truly a value play for investors.
NBR’s Global Reach, Technological Prowess & Long-Term Partnerships
The company has made considerable progress in expanding its global reach, particularly in key markets like Algeria, Argentina, Saudi Arabia and Kuwait. In the second quarter of 2024, its international rig count saw an increase and more rig deployments are expected for the rest of the year and in 2025.
Image Source: Nabors Industries Ltd.
This ongoing expansion positions Nabors to benefit from stronger revenue streams as these markets grow.
Technology has been another good feature for Nabors. The company has been at the forefront of innovation with products like SmartDRILL and SmartSLIDE, which have been widely adopted in its rigs. These technologies help improve efficiency and cut operational costs, giving Nabors an edge over its competitors. The company has also been developing its PowerTAP module, which connects rigs to grid power and significantly reduces diesel consumption and emissions. We positively think that this is an important step for Nabors as the industry places greater emphasis on sustainability.
Nabors has secured long-term partnerships with major clients, which offer a measure of stability. For instance, the company has locked multi-year contracts in Kuwait and is ramping up operations in Saudi Arabia, with multiple rig deployments scheduled in the next couple of years. These contracts ensure a steady revenue stream, even as the company faces challenges in other areas.
Nabors’ Financial Profile
Nabors has faced difficulty turning its success into consistent profits. In the second quarter of 2024, it reported a net loss of $32 million, a continuation of previous losses. This ongoing trend of net losses signals that while the company is generating revenues, it has been struggling to convert that into profitability. This is something investors should keep an eye on.
Additionally, Nabors is carrying a significant debt load of $2.5 billion as of the second quarter of 2024. The company has taken steps to manage this debt by generating free cash flow, but the interest payments and the need for future refinancing remain risks. While Nabors is making efforts to reduce its debt, these obligations could become a bigger issue if revenues dip or the cost of refinancing rises in the future.
On a positive note, Nabors has shown strong cash flow generation. In the second quarter of 2024, the company generated $57 million in free cash flow and is on track to generate between $100 million and $200 million for the full year. This is crucial for reducing NBR’s debt and keeping its financial flexibility intact.
The company also expanded its credit facility and issued long-term notes, extending NBR’s debt maturity profile. But while the cash flow is strong, we believe Nabors must continue its operational activities to maintain this momentum, which is also not guaranteed in an industry subject to so much volatility.
Other Concerns for NBR
The volatility of the oil and gas markets is another key factor to consider. Nabors' financial performance is heavily influenced by demand for drilling services, which in turn depends on fluctuating oil and gas prices. In the second quarter of 2024, for instance, the company saw a 6% decline in the United States. Lower 48 rig count was caused by reduced activity in gas-heavy regions such as the Northeast and South Texas. While Nabors has maintained strong performance in some areas, the overall softness in domestic markets serves as a reminder of the unpredictability in the industry.
Capital expenditure is another concern. Nabors’ management team expects to spend approximately $590 million in 2024, primarily to fund international growth, including projects in Saudi Arabia. While these investments are important for growth, NBR could place pressure on short-term profitability and limit the company’s ability to improve its balance sheet in the near term.
Nabors' reliance on international markets does expose it to geopolitical risks. Operating in regions like the Middle East and Latin America comes with its own set of challenges, including political instability and economic fluctuations. Any disruption in these regions could have a direct impact on the company’s operations, making it vulnerable to external factors beyond its control.
Price Performance of NBR
Nabors showed impressive resilience amid the challenges in the oil and energy market, with its share price rising 16.6% in the last three months. This performance significantly outpaced the broader oil and energy sector, which saw only a 2.9% increase at the same time. Additionally, NBR has outperformed its peers in the oil and gas drilling industry, including Helmerich & Payne (HP - Free Report) , Patterson-UTI Energy (PTEN - Free Report) and Transocean Ltd. (RIG - Free Report) .
3-Month Price Comparison
Image Source: Zacks Investment Research
As you can see in the chart, Nabors' performance clearly stands out against its competitors.
Final Thoughts for NBR Stock
Nabors Industries offers a mix of opportunities and risks. The company’s international growth, technological advancements and cash flow generation make it an attractive option for long-term investors. However, persistent net losses, a large debt burden and market volatility suggest caution. Of the 15 brokers covering the NBR stock, three have given Strong Buy recommendations, while 12 have rated it as Hold and there are no Sell recommendations.
As of Oct. 4, NBR’s shares were trading at $81.3, up 36.2% from its 52-week low of $59.67. So, Investors should wait for a more favorable entry point instead of adding this Zacks Rank #3 (Hold) stock to their portfolios now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Why Hold Strategy Makes Sense for Nabors Industries Right Now
Nabors Industries Ltd. (NBR - Free Report) is currently considered undervalued, trading at a 3.72X trailing 12-month enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA), which is significantly below the broader industry average of 16.18X.
Image Source: Zacks Investment Research
Zacks' proprietary data indicates that the company has a Value Score of A, suggesting that it is a solid choice for value investors.
While this makes Nabors seem like a bargain compared with its peers, there are important factors that investors must consider to understand the stock’s potential.
Company Description
NBR makes money by drilling wells for oil and gas companies. The company provides the equipment, expertise and services needed to extract these natural resources from the ground. While a discounted valuation can indicate a buying opportunity, this is important to assess whether NBR’s lower valuation is justified by its fundamentals, growth prospects and broader market conditions. A deeper dive into NBR’s operational and financial strengths, as well as its risks, is important to understand whether the company is truly a value play for investors.
NBR’s Global Reach, Technological Prowess & Long-Term Partnerships
The company has made considerable progress in expanding its global reach, particularly in key markets like Algeria, Argentina, Saudi Arabia and Kuwait. In the second quarter of 2024, its international rig count saw an increase and more rig deployments are expected for the rest of the year and in 2025.
Image Source: Nabors Industries Ltd.
This ongoing expansion positions Nabors to benefit from stronger revenue streams as these markets grow.
Technology has been another good feature for Nabors. The company has been at the forefront of innovation with products like SmartDRILL and SmartSLIDE, which have been widely adopted in its rigs. These technologies help improve efficiency and cut operational costs, giving Nabors an edge over its competitors. The company has also been developing its PowerTAP module, which connects rigs to grid power and significantly reduces diesel consumption and emissions. We positively think that this is an important step for Nabors as the industry places greater emphasis on sustainability.
Nabors has secured long-term partnerships with major clients, which offer a measure of stability. For instance, the company has locked multi-year contracts in Kuwait and is ramping up operations in Saudi Arabia, with multiple rig deployments scheduled in the next couple of years. These contracts ensure a steady revenue stream, even as the company faces challenges in other areas.
Nabors’ Financial Profile
Nabors has faced difficulty turning its success into consistent profits. In the second quarter of 2024, it reported a net loss of $32 million, a continuation of previous losses. This ongoing trend of net losses signals that while the company is generating revenues, it has been struggling to convert that into profitability. This is something investors should keep an eye on.
Additionally, Nabors is carrying a significant debt load of $2.5 billion as of the second quarter of 2024. The company has taken steps to manage this debt by generating free cash flow, but the interest payments and the need for future refinancing remain risks. While Nabors is making efforts to reduce its debt, these obligations could become a bigger issue if revenues dip or the cost of refinancing rises in the future.
On a positive note, Nabors has shown strong cash flow generation. In the second quarter of 2024, the company generated $57 million in free cash flow and is on track to generate between $100 million and $200 million for the full year. This is crucial for reducing NBR’s debt and keeping its financial flexibility intact.
The company also expanded its credit facility and issued long-term notes, extending NBR’s debt maturity profile. But while the cash flow is strong, we believe Nabors must continue its operational activities to maintain this momentum, which is also not guaranteed in an industry subject to so much volatility.
Other Concerns for NBR
The volatility of the oil and gas markets is another key factor to consider. Nabors' financial performance is heavily influenced by demand for drilling services, which in turn depends on fluctuating oil and gas prices. In the second quarter of 2024, for instance, the company saw a 6% decline in the United States. Lower 48 rig count was caused by reduced activity in gas-heavy regions such as the Northeast and South Texas. While Nabors has maintained strong performance in some areas, the overall softness in domestic markets serves as a reminder of the unpredictability in the industry.
Capital expenditure is another concern. Nabors’ management team expects to spend approximately $590 million in 2024, primarily to fund international growth, including projects in Saudi Arabia. While these investments are important for growth, NBR could place pressure on short-term profitability and limit the company’s ability to improve its balance sheet in the near term.
Nabors' reliance on international markets does expose it to geopolitical risks. Operating in regions like the Middle East and Latin America comes with its own set of challenges, including political instability and economic fluctuations. Any disruption in these regions could have a direct impact on the company’s operations, making it vulnerable to external factors beyond its control.
Price Performance of NBR
Nabors showed impressive resilience amid the challenges in the oil and energy market, with its share price rising 16.6% in the last three months. This performance significantly outpaced the broader oil and energy sector, which saw only a 2.9% increase at the same time. Additionally, NBR has outperformed its peers in the oil and gas drilling industry, including Helmerich & Payne (HP - Free Report) , Patterson-UTI Energy (PTEN - Free Report) and Transocean Ltd. (RIG - Free Report) .
3-Month Price Comparison
Image Source: Zacks Investment Research
As you can see in the chart, Nabors' performance clearly stands out against its competitors.
Final Thoughts for NBR Stock
Nabors Industries offers a mix of opportunities and risks. The company’s international growth, technological advancements and cash flow generation make it an attractive option for long-term investors. However, persistent net losses, a large debt burden and market volatility suggest caution. Of the 15 brokers covering the NBR stock, three have given Strong Buy recommendations, while 12 have rated it as Hold and there are no Sell recommendations.
As of Oct. 4, NBR’s shares were trading at $81.3, up 36.2% from its 52-week low of $59.67. So, Investors should wait for a more favorable entry point instead of adding this Zacks Rank #3 (Hold) stock to their portfolios now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.