Nabors Industries: Exponential Trajectory
Summary
- Nabors Industries reported third quarter 2020 revenues and other income totaling $437.61 million, down significantly from $756.64 million in the same quarter of last year.
- The average Lower 48 rig count is anticipated to increase in the first quarter of 2021.
- I believe NBR is now overbought and I recommend selling about 40% of your position above $115.
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Source: NBR website
Investment Thesis
Nabors Industries (NYSE:NBR) released its fourth quarter and full year 2020 results on Feb. 26, 2021.
I have recently published my views on the Helmerich & Payne (HP) fourth quarter results on Seeking Alpha, and the two companies are quite similar.
Nabors' smaller-than-expected loss was a relief. However, the loss essentially due to weak performance at the U.S. drilling and Drilling Solutions segments was substantial.
The investment thesis is not easy to formulate after this recent rally. I realize that Nabors' outlook is getting better, but on the other side, it's difficult to ignore the stock valuation.
I believe it's still a great time to trade short term NBR and take advantage of the volatility, but it may be wise also to keep a small long-term position betting on a full recovery in this sector by H2 2021. However, the stock is now obviously overbought, and caution is required.
Nabors Industries is doing very well in early 2021 with a recent jump of more than 40%, while Helmerich & Payne is not responding.
Data by YChartsCEO Tony Petrello said in the conference call:
Our financial discipline paid off in 2020. For the full year, we reduced overhead spending by 24%. This effort began in the second quarter. Our run rate in the fourth quarter represents nearly 27% drop over the 2019 quarterly average. We also made further progress on our twin priorities, namely, generate free cash flow and reduce net debt. We began the year at just under $2.9 billion in net debt. We delevered by nearly $400 million fueled in part by free cash flow generation of $184 million. We ended 2020 with net debt less than $2.5 billion.
Nabors Fleet Status Snapshot 4Q'20
The total is 132 rigs working, with average utilization of 34%.
Source: NBR Presentation
Not much has changed from the preceding quarter.
Nabors Industries - Balance Sheet In 4Q 2020: The Raw Numbers
| Nabors Industries | 4Q'19 | 1Q'20 | 2Q'20 | 3Q'20 | 4Q'20 |
| Total Revenues and other income in $ Million | 715.18 | 715.17 | 535.97 | 437.61 | 446.74 |
| Net Income in $ Million | -262.68 | -391.83 | -148.11 | -157.47 | -108.24 |
| EBITDA $ Million | 16.94 | -74.79 | 128.80 | 108.89 | -17.15 |
| EPS diluted in $/share | -38.50 | -56.73 | -22.13 | -23.42 | -16.45 |
| Operating cash flow in $ Million | 253.73 | 59.16 | 142.61 | 46.13 | 101.86 |
| CapEx in $ Million | 61.15 | 59.43 | 47.3 | 46.4 | 42.4 |
| Free Cash Flow in $ Million | 192.58 | -0.27 | 95.27 | -0.23 | 59.46 |
| Total Cash $ Million | 452.50 | 489.66 | 494.28 | 513.83 | 481.75 |
| Long-term Debt in $ Million | 3,333.2 | 3,388.0 | 3,276.1 | 3,290.3 | 2968.7 |
| Dividend per share in $ | 0.01 | 0.01 | - | - | - |
| Shares outstanding (Basic) in Million | 7.043 | 7.051 | 7.052 | 7.061 | 7.067 |
Courtesy: NBR 10-K filing, Fun Trading.
Balance Sheet Snapshot
1 - Revenues and other income were $446.74 million in 4Q'20
Nabors Industries reported third quarter 2020 revenues and other income totaling $437.61 million, down significantly from $756.64 million in the same quarter of last year (please look at the chart above).
The quarter's net income was a loss of $157.47 million or $23.42 per share, compared to a loss of $118.93 million, or $18.25 per share, during the third quarter of 2019.
The adjusted EBITDA was $114.22 million, compared to $207.03 million in the prior quarter.
Revenues per segment:
U.S. Drilling: The quarterly operating revenues were $134.13 million, down 53.7% from $289.5 million last year. The segment showed an operating loss of $26.2 million compared to an income of $6.8 million a year ago due to a drop in daily revenues.
Canadian Drilling: The revenues this quarter were $14.82 million, way down from the year-ago revenues of $19.4 million. Operating loss was $2.5 million, better than the year-ago quarter’s loss of $3.2 million.
International Drilling: The quarterly operating revenues were $245.09 million, down from $331.7 million last year. Operating loss came in at $35.5 million this quarter compared to $1.15 million last year.
Drilling Solutions: Revenues were 47.1%, down to $32 million in the fourth quarter versus $60.5 million a year ago. The segment operating loss was $2.5 million from a profit of $16.6 million last year.
The rig Technologies/Other segment plummeted 48% to $27.4 million from $52.6 million last year.
Guidance 2021
2021 capex guidance is $200 million, slightly up from $190 million in 2020.
The average Lower 48 rig count is anticipated to increase. However, the company expects daily margins in Q1 to decline by $500 to $1,000 due primarily to the absence of early termination revenue in Q4.
The company's Canada Drilling segment is expected to increase by 30% sequentially. Finally, the company indicates a flat adjusted EBITDA for Drilling Solutions and Rig Technologies unit, in line with the fourth quarter results.
CEO Tony Petrello said:
To summarize our view of the markets, global oil demand continues to rebound from the pandemic low. Oil inventories, which expanded considerably in early 2020 are dropping. The resulting increase in commodity prices has improved operator economics. We see their response in the recent growth in rig count. Overall, assuming the worst of the pandemic is behind us, the market environment is poised to support higher levels of activity.
2 - 2020 free cash flow is $154.23 million with $59.47 million in 4Q'20.
Note: Generic free cash flow is cash from operations minus CapEx. It differs slightly from the company calculation.
2020 free cash flow was a gain of $154.23 million, with $59.47 million in 4Q'20.
The company is not paying any dividends since Q1'20.
3 - Net debt is now $2.49 billion at the end of Q4'20.
Net debt in the fourth quarter was $2.49 billion. Total cash was $481.8 million. Total debt to total capital is 72.1%. NBR cut debt and obligations by $307 million in 4Q'20 and during 1Q'21.
Source: Company Presentation
Conclusion and Technical Analysis (Short Term)
Nabors Industries' recent run-up is a surprise. The fourth quarter results were not what I could qualify as stellar; even so, it was a small beat. The outlook for Q1'21 is not inspiring. Thus, I am scratching my head here.
The possible reason for this rally is that the company has a minimal float since it reverse-split, and the rig demand is starting to go up, which is fueling speculation and boosts momentum. As we know, Nabors Industries is one of the largest land rig providers.
Technical Analysis (short term)
NBR experienced a breakout of its ascending wedge pattern last week and is now jumping to new highs. The only element that could tell us that NBR is overbought now is the RSI at about 80.
Thus, while it is difficult to predict the next move here, we can conclude two things.
First, the old resistance is now a new support line at about $90, and I recommend selling about 40% of your position above $115, based on the RSI reaching 80.
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This article was written by
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