Nabors Industries (NBR +3.4%) extends yesterday's big gains after posting strong Q4 results, and Morgan Stanley thinks shares can move a lot higher, upgrading NBR to Overweight from Equal Weight and raising its price target to $28 from $18.
NBR has underperformed peers Helmerich & Payne (HP) and Patterson-UTI (PTEN) by ~25% since Q3 2013 on poor operational execution and a muddled corporate strategy, but Stanley sees signs that NBR's North America results have bottomed and execution has gained relative traction.
The firm also expects operational streamlining to gain momentum over coming quarters and is encouraged by the appointment of a new CFO.
Nabors Industries (NBR +11%) surges to 52-week highs after reporting Q4 results that beat Wall Street expectations and offering an optimistic near-term outlook.
“We believe we’ve seen the bottom” in the drilling rig market, CEO Tony Petrello said in today's earnings call, adding that rig rates increased modestly in Q4 but could rise higher this year.
Daily rates for highly specialized walking rigs have begun to increase as more U.S. oil companies use multiwell drilling platforms, Petrello says; a turnaround in the drilling business could lift land drillers out of their earnings slump.
NBR's fleet of ~150 pad-compatible walking rigs saw 94% utilization in the Q4, while demand for its older, mechanical rigs continues to lag behind.
Most other deepwater drillers also are higher: PKD +2%, HP +1.7%, PDS +1.2%.
NBR's completion and production services, which includes its U.S. well servicing and pressure-pumping operations, posted a Y/Y adjusted operating income drop of 21%; adjusted operating earnings at the drilling and rig services business rose 11%.
While its international rig count was flat in Q4, NBR was able to boost margins due to lower costs to move rigs and other items.
Says it reinvested $1.4B in new rigs and technological upgrades while cutting its debt level by $870M.
Last year should represent "the low point in Nabors' protracted five-year tough," CEO Tony Petrello says, adding that he sees "substantial, year-over year quarterly improvement" in results starting next quarter.
Among Goldman's reasons: WTI saturation is unlikely in 2014; negative revenue surprises during the year may be offset somewhat by positive margin surprises; and capex should rise by mid-single digits but companies with exposure to horizontal completions on U.S. land and with high Gulf of Mexico and Middle East exposure should see revenue growth at the upper end.
The firm recommends owning Halliburton (HAL) and Schlumberger (SLB) into earnings, and likes NBR, RES, CJES, BAS, PES and OII.
Cowen lowers its estimates on oil service and drilling stocks (OIH) after an internal survey estimates slower than expected 4% growth in exploration and production spending in 2014, presenting a difficult scenario for the stocks to perform well (Briefing.com).
The firm downgrades and cuts earnings estimates for Baker Hughes (BHI -1.5%), Cameron (CAM -0.4%), Nabors Industries (NBR -2%), CGG (CGG -0.2%), Superior Energy (SPN -1.9%) and Helmerich & Payne (HP +1.1%) to Market Perform from Outperform as it reduces industry growth estimates for 2014 and 2015.
Oil services analysts at Deutsche Bank are very positive on the sector for next year, despite pervasive fears of weakening U.S. oil prices.
Baker Hughes (BHI), Halliburton (HAL), Hercules Offshore (HERO) and Nabors Industries (NBR) are the firm's highest conviction choices and include price targets much higher than consensus; NBR's $27 target is the highest on Wall Street and would represent a 60% gain from current levels.
The firm also sees strong upside potential in Patterson-UTI Energy (PTEN), Pioneer Energy Services (PES) and Schlumberger (SLB).
ISI Group turns bullish on the U.S. land rig and oil services sector after two years at neutral, as "E&P capex budgets finally appear poised for meaningful increases in 2014 driven by higher WTI prices, solid domestic production growth, and continued success in select basins." (Briefing.com)
Saudi Aramco is reportedly set to raise the rig count in Saudi Arabia to more than 200 by the end of next year and energy service companies are ready to take advantage of the opportunity.
Saudi Arabia is under pressure to plug a supply hole left by disruptions in Libya, Iran, Nigeria, and Yemen and "is investing heavily to preserve the world's largest spare oil production capacity cushion at more than 2M bpd," Reuters says.
Industry heavyweights looking to capitalize on a potential boom in drilling include: Halliburton (HAL), Nabors (NBR), Rowan (RDC), Ensco (ESV), Baker Hughes (BHI), and Schlumberger (SLB).
Nabors Industries (NBR) -2.4% AH after the oilfield services company swung to an unadjusted Q3 loss.
The reported $104.6M loss, which compared with a year-earlier profit of $76.4M, included $242.2M in writedowns and other charges and $3.3M in asset-sale losses.
Completion and production services, which includes U.S. well servicing and pressure pumping operations, posted a Y/Y adjusted operating income drop of 52%; operating earnings for the drilling and rig services business fell 11%.