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Analyst Blog

Following Nabors Industries Ltd’s (NBR - Analyst Report) second quarter profit warning, analysts at investment bank The Goldman Sachs Group Inc. (GS - Analyst Report) downgraded the land drilling contractor’s stock  from Conviction List-Buy to Buy,.

On Jul 9, Nabors stated that it expects operating results for the second quarter of 2013 to miss expectations. This declaration also led Goldman to lower the price target from $22.00 to $19.50

According to Nabors, unsatisfactory performance from its ‘Rig Services’ and ‘Completion and Production Services’ units will lead to this lower-than-expected operating return. Decline in sales of capital tools along with decreased rig services and rental activities impair Nabors’ Rig Services segment.

On the other hand, the Completion and Production Services unit was affected by a tough competitive environment and severe weather conditions. The company projects its operating income for second-quarter 2013 to be between $88.0 million to $91.0 million.

Following the grim update – issued after the market close on Tuesday, Jul 9 – shares of Nabors fell $1.01, or 6.3%, yesterday, to close at $14.99.

Nabors is about to release its second-quarter earnings result after the closing bell on 23 Jul, 2013. Our estimate for earnings per share for the quarter stands at 15 cents.

Barbados-based Nabors’ high natural gas exposure raises its sensitivity to gas price fluctuations. The company remains particularly exposed to this situation since its North American business is heavily dependent on gas drilling.

Nabors currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next 1 to 3 months.

Meanwhile, two firms in the oil and gas drilling sector with a favorable Zacks Rank are Ocean Rig UDW Inc. (ORIG - Snapshot Report) and Atwood Oceanics Inc. (ATW - Snapshot Report). Ocean Rig carries a Zacks Rank #1 (Strong Buy), while Atwood sports a Zacks Rank #2 (Buy).

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