Weatherford International (WFT) shares plunged after the company reported preliminary third quarter 2012 earnings and an update which disappointed many investors. The shares dropped nearly 16% in one day and hit a new 52-week low which prompted some investors to question if the pullback is a buying opportunity. However, it appears to be too early to buy.
The company announced preliminary third quarter earnings before income taxes of $191 million, or $264 million when excluding pre-tax losses of $73 million. The excluded items include inventory adjustments, professional fees, severance and other expenses. Weatherford also reported a revised preliminary second quarter loss before income taxes of $753 million. Part of this loss was caused by a $589 million goodwill impairment charge, as well as other expenses.
Weatherford shares are likely to remain under pressure for a few reasons and because of this, it makes sense to avoid the stock for now. Here are 3 points to consider:
1) Weatherford has identified a material weakness in its internal control over financial reporting and errors relating to this has caused the need for it to restate earnings. It intends to file restated financial statements for fiscal 2011, 2010 and 2009 in a Form 10-K/A for the year ended December 31, 2011 and restated financial statements for the first quarter of 2012 in a Form 10-Q/A as soon as practicable, however, that could leave investors wondering for quite a while.
2) The stock dropped sharply on this announcement and closed near the lows for the day and it made a new 52-week low of $9.02. On the day of this announcement the stock traded in a range between $9.02 to $9.94 and closed near the low end of this range at $9.15. Since the stock closed near the lows, it indicates ongoing and persistent weakness rather than a stock with near-term rebound potential. That means there is a good chance that additional selling pressure could take the stock lower in the coming days and weeks.
3) Stocks that have declined during the year often see additional tax loss selling pressure in November and December. With Weatherford shares at 52-week lows, it is likely to see tax-loss selling pressure in the coming weeks.
Here are some key points for WFT:
Current share price: $9.15
The 52 week range is $9.02 to $18.33
Earnings estimates for 2012: 98 cents per share
Earnings estimates for 2013: $1.31 per share
Annual dividend: none
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.