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Why Is Nabors (NBR) Up 12.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Nabors Industries (NBR - Free Report) . Shares have added about 12.9% in that time frame, outperforming the S&P 500.

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

Nabors Posts Wider-Than-Expected Q1 Loss, Sales Top Estimates

Nabors recently reported reported reported first-quarter 2021 loss from continuing operations (excluding special items) of $20.16 per share, wider than the Zacks Consensus Estimate of a loss of $20.10 as well as the year-ago loss of $19.86. This underperformance was primarily due to weak performance at the U.S. drilling, International Drilling and Drilling Solutions segments.

Quarterly revenues of $462 million beat the Zacks Consensus Estimate of $451 million, attributable to better-than-expected sales from the Canadian Drilling unit (which logged $20.99 million, comparing favorably with the Zacks Consensus Estimate of $19 million). However, the top line declined from the year-ago level of $715.2 million.

Notably, year over year, Nabors’ adjusted EBITDA fell from $187.7 million to $107.3 million.

Segmental Performance

U.S. Drilling generated quarterly operating revenues of $142.3 million, down 48.2% from the year-ago level of $274.9 million. The segment recorded an operating loss of $23.4 million, wider than the year-ago loss of $7.4 million due to a change in the mix toward rigs priced at the current market rates.

Canadian Drilling’s revenues of $20.99 million in the quarter under review tumbled from the year-ago figure of $25.6 million. However, the segment’s operating income came in at $3.9 million, higher than the year-ago quarter’s income of $37,000, attributable to an improvement in average daily gross margin as a result of increased activity and a pay subsidy from the government.

International Drilling’s operational revenues of $246.8 million decreased from the year-ago quarter’s sales of $337.1 million. Moreover, the segmental operating loss came in at $18.6 million in the reported quarter, wider than the prior-year loss of $4.15 million because of the lack of early termination sales in the first quarter.

Revenues from the Drilling Solutions were 35.5% down to $35.7 million in the first quarter from $55.4 million a year ago. Also, the same missed the Zacks Consensus Estimate of $37.4 million. Moreover, the unit’s operating income of $4.7 million fell from the year-ago profit of $10.5 million.

Revenues from the Rig Technologies segment plunged 38.9% to $25.75 million from the prior-year level of $42.2 million. Moreover, the metric missed the Zacks Consensus Estimate of $30.4 million due to weak capital equipment sales. However, the segment’s operating loss narrowed to $2.57 million from the prior-year loss of $8.2 million.

 

Financials

Total costs and expenses declined to $580.4 million from $1.07 billion in the year-ago quarter, reflecting lower depreciation costs, and general and administrative expenses.  

As of Mar 31, 2020, the company had $417.6 million in cash and short-term investments, and a long-term debt of $2.90 billion with total debt-to-total capital of 74.1%.

Nabors generated free cash flow of $60.4 million in the first quarter.

Guidance

Nabors’ second-quarter 2021 average Lower 48 rig count is anticipated to increase by six-seven rigs from the first-quarter 2021 average of 64 rigs. The company projects its drilling margins to be more than $7,000, implying the persistence of migration of the fleet's pricing into the existing market rates.

This Hamilton-based entity’s Canada Drilling segment’s first-quarter 2021 rig activity is estimated to increase to more than six rigs from just above two rigs in the second quarter of last year. Also, the company expects June-quarter adjusted EBITDA for Drilling Solutions to remain almost in line with the March-quarter results whereas second-quarter adjusted EBITDA for Rig Technologies is expected to be marginally above breakeven.



 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 10.11% due to these changes.

VGM Scores

Currently, Nabors has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. 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 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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