Nabors Earnings Preview

| About: Nabors Industries (NBR)

Global land drilling contractor Nabors Industries Ltd. (NYSE:NBR) is expected to report its first quarter 2011 earnings on Tuesday, April 26, after the market closes. The Zacks Consensus Estimate for the first quarter is a profit of 34 cents per share.

Preceding Quarter Recap

Nabors’ earnings per share, excluding one-time items, came in at 44 cents in fourth quarter 2010, surpassing the Zacks Consensus Estimate of 37 cents and way above 12 cents earned in the year-ago quarter. Total revenue in the quarter was $1.33 billion, ahead of the Zacks Consensus Estimate of $1.26 billion and fourth quarter 2009 sales of $727.2 million.

The company’s performance benefited from the addition of the Superior Well Services and a strong North American market.

As of December 31, 2010, Nabors had $801.2 million in cash and short-term investments and $5.46 billion in long-term debt (inclusive of current portion), with a debt-to-capitalization ratio of approximately 50.5%.

Agreement of Analysts

The analysts exhibit a mixed sentiment on Nabors’ to-be-reported quarter based on strength in the U.S. and Canadian land drilling markets, partially offset by the weak natural gas fundamentals.

In the last 30 days, out of the 28 analysts covering the stock, two have raised their estimates and three have lowered the same for the first quarter of 2011. In the last seven days, none of the analysts revised their estimates.

Magnitude of Estimate Revisions

Notwithstanding the analysts’ earnings revision, the Zacks Consensus Estimate for the first quarter remained static at 34 cents for the 30-day time frame.

Surprise History

Nabors have managed to meet/beat earnings expectations over the last four quarters. The company has performed consistently during this period with its average earnings surprise being 16.86%.

Our Recommendation

Barbados-based Nabors conducts oil, gas and geothermal land drilling operations and is a leading land-drilling contractor worldwide. It is also one of the largest land well servicing companies and workover contractors in the U.S.

We believe that Nabors exhibits a large, high-quality drilling fleet and remains well positioned with a sound mix of high performance rigs and new rigs working in the key shale plays. The company also enjoys good exposure to oil plays with its presence in the Bakken, Permian and International plays.

However, the company remains vulnerable to volatile natural gas prices, imbalance in the demand-supply of rigs in the U.S. land drilling market and international business risks. Naborsfaces competition from peers such as Ensco plc (NYSE:ESV) and Patterson-UTI Energy Inc. (NASDAQ:PTEN). We maintain our long-term Neutral recommendation on Nabors shares.