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Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

A Gusher of Opportunity by Andrew Bary

Summary: Nabors Industries (NYSE:NBR) is the global energy onshore drill leader, with 15% of the 48-state US market, +50% of Alaska's and 33% of Saudi Arabia's. But its $28.59 shares reflect a largely missed bull run on energy stocks because of fears that lower US natural gas prices could lead to rig oversupply and leasing price pressures. Offshore drilling rivals Diamond Offshore (NYSE:DO) and Transocean (NYSE:RIG) enjoy a stronger, steadier market. US onshore drilling weakness is expected to persist until 2008, but long term US natural gas prospects are strong. Nabors spent $2b upgrading rigs in 2006, and $1.8b this year. Newer, powerful rigs get higher leasing prices, usually recouping their $14m cost within the first three years of a 30-year rig life. With expenditures downtrending next year, $1b in expected new cash could buy back more shares or yield dividends. Despite credit market turmoil, 1) a low P/E of 8x 2007 estimated profits of $3.45/share and 7x projected 2007 profits of $4.01, 2) $4 billion in debt and $1b cash for an $8b enterprise, and 3) tripled profits since 2004, could invite LBOs. Bulls say a $4 EPS (analysts' consensus) would double the stock price, but even just a $3 EPS would put it in the $40-$45 range.

Related Links: Energy Stock Trader: Wednesday OutlookLand-Based Drillers Extremely MispricedCaveat Emptor: Nabors Industries Warns Downward

NBR 1-yr. chart:

NBR chart

Source: Nabors Is Richly Undervalued - Barron's