wax

Nabors Is Richly Undervalued - Barron's

I did a back of the napkin thing for Nabors Industries, Ltd. (NYSE: NBR) based on the company's 2006 10-K numbers and came up with a reasonable value estimate of $54-$62.

Curious, I found that the stock closed yesterday (08.21.07) $28.98 and had first resistance at $31.55 (200 day), second resistance at $31.89 (50 day), and support at $27.05 (52 week low). That's not much wiggle room for a company in the oil field services business.

Based on my reasonable value estimate I would set a buy target at $27. Normally I would set a first sell target at $52, but because there is so much market volatility at present and because I think this volatility is going to be with us for the next 18-24 months, I would set a first sell target, the point at which I would sell off half of my shares, at $41, and be completely out of the stock at $56.

I have to admit that I like the company, and current management, in place since 1987, has done an adequate job. Were I to be a buyer of the stock, it would probably be 1.5% position for me. But alas at the moment, a buyer I am not, and the reason is because I can't work out an answer to what I consider to be a basic question.

How do you increase shareholder value in an industry that is as mature as the oil industry? If Nabors' management can figure that out, I may have to rethink my valuation of the company. With almost $6.25 of free cash flowing directly to equity, and a trailing twelve PE of 8.5, the company seems poised to dominate it's industry, and yet it doesn't. Why?

For those that have the time to dig into this company, the folks willing to put forth the effort to contact the investor relations folks at Nabors, it may indeed prove to be extremely profitable. [sigh]


In the mean time I'll be here, watching the price go up, and telling all my friends at the pub, how this one got away.

Wax