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Land drilling contractor Nabors Industries Ltd. (NBR - Analyst Report) is set to release its second-quarter 2013 results after the closing bell on Jul 23, 2013.

In the last quarter, the company delivered a 13.79% positive earnings surprise on the back of better results by the Production Services segment and seasonal peak in Canadian operations. Let’s see how things are shaping up for this announcement.

Factors to Be Considered This Quarter

Nabors anticipates that its operating results for the second quarter of 2013 will fail to meet expectations. According to Nabors, unsatisfactory performance from its ‘Rig Services’ and ‘Completion and Production Services’ units will lead to this lower-than-expected 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.

Moreover, Nabors’ relatively weak balance sheet in this severe credit-constrained environment (debt-to-capitalization ratio of more than 42%) is also a cause for concern. Over the last few years, the company kept adding debt to its balance sheet for a fleet recapitalization program.

Earnings Whispers

Our proven model does not conclusively show that Nabors is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Expected Surprise Prediction (ESP) (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1 (Strong Buy), or #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Negative Zacks ESP: This is because the Most Accurate Estimate is 8 cents while the Zacks Consensus Estimate stands at 9 cents. This leads to an ESP of -11.11% for Nabors.

Zacks Rank #3 (Hold): Nabors’ Zacks Rank #3 reduces the predictive power of ESP.

We caution investors against the stock going into the earnings announcement, as a Zacks Earnings ESP of -11.11% combined with a Zacks Rank #3 lowers the possibility of an earnings surprise.

Stocks to Consider

Here are some companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter.

W&T Offshore Inc. (WTI - Snapshot Report) has an Earnings ESP of +9.09% and a Zacks Rank #1 (Strong Buy).

Memorial Production Partners LP (MEMP - Snapshot Report) has an Earnings ESP of +19.51% and carries a Zacks Rank #1 (Strong Buy).

Bonanza Creek Energy Inc. (BCEI - Snapshot Report) has an Earnings ESP of +4.65% and carries a Zacks Rank #2 (Buy).

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