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Nabors (NBR) Up 9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Nabors Industries (NBR - Free Report) . Shares have added about 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 its most recent earnings report in order to get a better handle on the important drivers.

Nabors Q3 Loss Wider Than Expected, Revenues Miss Mark

Nabors Industries Ltd.’s third-quarter 2019 loss from continuing operations (excluding special items) came in at 31 cents per share, wider than the Zacks Consensus Estimate of 23 cents, primarily due to weak performance of the Canadian and International drilling segment.

Meanwhile, the bottom line is in line with the year-ago adjusted loss.

Quarterly revenues of $757 million fell short of the Zacks Consensus Estimate of $775 million. Moreover, the top line was lower than the year-ago level of $778 million.

Notably, year over year, Nabors’ adjusted EBITDA grew from $201 million to $207 million, reflecting a 3% rise on improved daily gross margin resulting from stable pricing, excellent operating performance and a favourable rig mix.

Segmental Performance

U.S. Drilling segment generated quarterly operating revenues of $307.8 million, up 12.34% from the year-ago level of $274 million. The segment recorded an operating income of $12.4 million, significantly higher than the year-ago income of $2.6 million as robust utilization of high-specification rigs more than offset the lower rig count.

Canadian Drilling segment’s revenues came in at $12.2 million in the quarter under review, down 54.24% from the year-ago figure of $26.6 million. The figure also missed the Zacks Consensus Estimate of $17.75 million. Moreover, the segment’s operating loss widened to $5.7 million from $1.9 million in the corresponding quarter of 2018 amid weak market environment.

International Drilling segment’s operational revenues of $328.3 million decreased 13% from the year-ago quarter’s $377.1 million as well as lagged the Zacks Consensus Estimate of $339 million. The segmental operating income of $2.4 million in the quarter under review declined from the prior-year income of $25.7 million. The primary reason for this decline is lower rig activity.

Revenues from the Drilling Solutions segment increased to $62.3 million in the third quarter from $60.9 million a year ago. The unit’s operating income of $16.1 million improved from $9.5 million. This can be attributed to higher margin international activity along with jobs related to tubular running services (TRS) in the United States.

Revenues from the Rig Technologies segment decreased marginally to $63.1 million from the prior-year level of $63.6 million. The same also missed the Zacks Consensus Estimate of $76 million. However, the segment’s loss narrowed to $641,000 from the prior-year loss of $4.1 million. This upside is driven by an increased contribution from the core Canrig aftermarket business and tubular projects.

Financials

Total costs and expenses are reduced to $832.5 million from $861.3 million in the year-ago quarter, reflecting lower direct costs and impairment charges.  

As of Sep 30, the company had $418.9 million in cash and short-term investments plus $3.52 billion in long-term debt with a debt-to-capitalization ratio of approximately 60.03%.

Guidance & Outlook

Nabors expects drilling activity in Lower 48 to be persistently subdued by a “couple of hundred dollars” in the fourth quarter.

The company estimates rig count in the international segment to be sequentially similar in the fourth quarter.

The Canadian segment is projected to experience an uptick in the fourth quarter, aided by a recovering daily margin and higher rig count.

The adjusted EBITDA from the Drilling Solutions and Rig Technologies segment is expected to be in line with the sequential quarter’s figure in the fourth quarter.

For the fourth quarter, Nabors predicts its EBITDA between $200 million and $205 million.

Nabors’ full-year capex is projected in the range of $400-$410million. The company expects to generate positive free cash flow after paying out dividends in the fourth quarter. It is firmly focused on lowering net debt by more than $200 million this year and anticipates free cash flow of roughly $300 million through 2020.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.33% due to these changes.

VGM Scores

Currently, Nabors has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Nabors has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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