Nabors Industries Ltd. (NBR Quick QuoteNBR - Free Report) is a major company in the global energy sector, offering drilling services for both land-based and offshore oil and gas wells. Founded in 1952, NBR has built a strong reputation by providing advanced drilling technology and equipment to customers in the United States and worldwide. The company operates in four main areas, namely U.S. Drilling, International Drilling, Drilling Solutions and Rig Technologies.

NBR offers services like tubular running, managed pressure drilling and advanced steering systems. It also provides digital platforms like RigCLOUD, which help track operations in real-time, making drilling more efficient and safer.

Along with its services, NBR manufactures and sells equipment used in drilling, such as top drives, catwalks and wrenches. The company also provides maintenance and support services for its equipment, ensuring long-term customer satisfaction. As the energy sector grows, NBR stock remains in the spotlight for investors looking for potential opportunities. Though the stock has seen ups and downs, many are wondering if they should hold on, buy more or wait?

Let us examine the key factors affecting NBR’s performance and decide whether it is the right time to invest or adopt a "wait-and-watch" strategy.

What is Fueling NBR Stock’s Growth?

Expanding Business in Global Markets: NBR is growing its business in countries like Saudi Arabia, Argentina and Kuwait. It has signed long-term contracts that ensure steady revenues. In Saudi Arabia, the joint venture with Aramco (“SANAD”) is expected to double its earnings in 2025, bringing stability to the cash flow.

Strong Growth in Drilling Solutions & Rig Technologies: The company’s Drilling Solutions segment reported a 54% gross margin, with increasing penetration on third-party rigs. Additionally, Rig Technologies saw a 51% sequential EBITDA increase, driven by strong demand for capital equipment in the Middle East.

Parker Wellbore Acquisition Synergies: NBR's acquisition of Parker Wellbore is expected to unlock $35 million in synergies and enhance its presence in key global drilling markets. The deal should provide incremental free cash flow, improving the company’s financial outlook.

Stable Leading-Edge Pricing in the United States: Despite market fluctuations, NBR has maintained stable leading-edge pricing for its high-performance rigs in the Lower 48. Its advanced drilling solutions and technology-driven services ensure sustained pricing power and competitive daily margins.

Potential Upside From Industry Recovery: While the oilfield services sector is currently facing headwinds, a rebound in drilling activity, especially in response to rising oil prices, could lead to increased rig demand. NBR, with its strong portfolio of high-specification rigs and international contracts, is well-positioned to benefit from an eventual market recovery.

Nabors has considerable growth potential, but certain challenges could influence its performance. Let us explore them.

What Might Limit NBR’s Success

Cash Flow Risks From Delayed Customer Payments: A significant portion of NBR’s cash flow issues stemmed from a $50 million payment delay by a major client in Mexico. While the company expects these payments to resume in 2025, continued delays could strain liquidity and impact capital allocation plans. Additionally, Pemex’s budget cuts could further disrupt revenues from Mexico.

Macroeconomic Uncertainty Could Impact Industry Spending: Global economic conditions, including potential recessions, inflationary pressures and fluctuating energy prices, could influence capital spending by oil and gas companies. If energy prices decline or economic conditions weaken, drilling activity may slow down, negatively impacting NBR’s revenues and profitability.

Heavy Investment in SANAD May Hurt Finances: NBR is spending a lot on SANAD’s new rigs. While this project will generate earnings, the short-term cost is high. If cash flow does not improve soon, the company may face financial strain.

Underperformance Compared With Peers: NOV stock has been facing a lot of selling pressure, dropping more than 52% in the past three months. Recently, the company, which is a major player in the oil and gas equipment and services sector, has been underperforming compared with the overall Oil and Gas sector, and the Zacks Oil and Gas Mechanical and Equipment sub-industry. The stock has also struggled to keep pace with its competitors like Kodiak Gas Services (KGS Quick QuoteKGS - Free Report) , Natural Gas Services Group (NGS Quick QuoteNGS - Free Report) and Oil States International (OIS Quick QuoteOIS - Free Report) . 

Analyzing 3-Month Stock Performance

Image Source: Zacks Investment Research

Final Verdict on NBR’s Potential

NBR is experiencing strong growth driven by its expanding business in international markets, particularly in Saudi Arabia, Argentina and Kuwait. Its joint venture with Aramco is expected to double earnings in 2025. The company also benefits from robust performance in its Drilling Solutions and Rig Technologies segments, along with the potential for $35 million in synergies from the acquisition of Parker Wellbore.

Despite these positives, NBR faces challenges such as cash flow risks from delayed payments, potential macroeconomic impacts on industry spending and heavy investments in the SANAD project that may strain finances. Additionally, underperformance compared with competitors and market conditions adds to the uncertainty around NBR’s performance.

Given this mix of strengths and potential challenges, investors should consider adopting a hold strategy for now, waiting for a more opportune entry point before adding this Zacks Rank #3 (Hold) stock to their portfolio.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.