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Shares of  Nabors Industries Ltd. (NBR - Analyst Report) hit a 52-week high of $30.08 on Jul 1. In fact, the Hamilton, Bermuda-based onshore contract driller has seen its stock price climb some 11% over the past five days. To a large extent, this price appreciation can be attributed to last week’s C&J Energy Services Inc. (CJES - Snapshot Report) deal.

Why the Bullishness?

Nabors, which ranks ahead of Patterson-UTI Energy Inc. (PTEN - Analyst Report) as the largest North American onshore contractor, has a large, high-quality fleet of drilling and workover rigs. Over the years, the company has grown through cash flow reinvestments and acquisitions. In the process, Nabors has not only increased its rig fleet, but also extended its geographic reach and diversified its operating assets beyond land rigs.

On Jun 25, Nabors announced that it has entered into an agreement with oilfield services provider C&J Energy Services to merge its completion and production services businesses located in the U.S. and Canada with the latter for about $2.86 billion in cash and stock. Nabors is expected to receive around $937 million in cash and 62.54 million shares of the new company.

Management at Nabors expects this move to be value additive for shareholders of both the companies. The increase in high-quality assets and widened scale of operations should improve prospects for the new company. Nabors stated that though it believes that the merged assets have long-term potential, the move taken by it was a faster way to realize the true value. (Read More: Nabors Unit and C&J Energy to Form New Company, Shares Rise)

Apart from the C&J Energy deal, we believe Nabors’ last year’s announcement to start paying out a portion of its earnings in the form of shareholder dividends has had a positive effect on the company’s stock price. The dividend start-up not only highlights Nabors’ commitment to create value for shareholders but also underlines the energy equipment supplier’s confidence in its business going forward.

Zacks Rank & Stock Pick

With Nabors shares trading at 52-week high, any upside from here may be limited, as suggested by the company's Zacks Rank #3 (Hold).

A better-ranked stock in the ‘Oil & Gas Drilling’ sector would Pioneer Energy Services Corp. (PES - Snapshot Report). It carries a Zacks Rank #1 (Strong Buy).

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