3 Solid Takeaways From Nabors Industries Ltd's Earnings

Nabors Industries provided solid examples of an improving market, making the stock attractive even after the large post-earnings jump.

Feb 21, 2014 at 8:41AM

The land drilling market is clearly improving according to the latest news from Nabors Industries Ltd (NYSE:NBR). Likewise, the stock surged to 52-week highs based on the improvements in the sector, leaving a dilemma for potential investors.

The land-based driller saw improvements on virtually every front, whether drilling or completion services or domestic versus international areas. The driller didn't even see some of the normal seasonality that typically hits during the last quarter of the year.

Nabors competes against Helmerich & Payne, (NYSE:HP) and Patterson-UTI Energy (NASDAQ:PTEN), which had both previously reported solid numbers, sending those stocks to multi-year highs. Due to Nabors having a business focus beyond building and operating drilling rigs, its stock hadn't performed as well prior to the post-earnings lift. The company provided the following takeaways during the earnings report:

International margins surpass 2008 peak
While the market wasn't paying attention with the stock trading mostly flat for 2013, Nabors generated average margins of $15,884 per rig day in the international segment. The number incredibly surpassed 2008 margins, which was the previous best year for that unit. The company expects weakness during the first quarter due to the dry-docking of a jackup rig, but starting in the second quarter the numbers should improve. The company previously announced new deployments and contractual rate increases impacting more than 30 rigs in the next five quarters.

For Helmerich & Payne, the international operations are only a fraction of the domestic drilling rigs. As an example, the domestic land operations posted operating income of $251 million in comparison to the $12.8 million for the international operations. Regardless, the average rig margin per day declined to only $10,342 during the year-end quarter. The margin level isn't directly comparable, with Helmerich pulling out the offshore rigs into a different segment.

Improving U.S. rig demand  
The domestic drilling market is quietly improving according to the results from Nabors and Helmerich. In both cases, customers are starting to order new premium rigs, including plans to deploy 20 PACE-X rigs from Nabors in 2014. Conversely, Helmerich received orders for 35 premium FlexRigs since the start of October. Patterson-UTI saw strong demand as well, with contracts for seven new APEX rigs since the last earnings release.

In total, Nabors received secured contracts for 40 new and 11 upgraded rigs during 2013 that amounted to an aggregate of over 140 rig years and $2.8 billion in revenues.

Patterson-UTI plans to build 20 of the premium APEX rigs during 2014 after building only 11 in 2013. As of the earnings release back on Feb. 6, the company had half of the new rigs under contract. Demand improved so much for Patterson-UTI that the fleet of old, electric rigs saw increasing interest. The company now operates 124 of the high-specification APEX rigs with over 95% utilization during 2013.

Improved year-over-year results
Maybe the biggest takeaway from the earnings report for Nabors was the bottoming of the market during the fourth quarter. The company reported that both adjusted net income and EBITDA improved over the comparable period last year. Nabors generated net income of $159.6 million in the fourth quarter of 2013, compared to $153.7 million for the corresponding quarter of 2012. While full-year EBITDA declined from 2012 by roughly $310 million, the fourth-quarter numbers grew by $15 million over last year.

Helmerich saw similar increases in operating income with the all-important domestic unit generating income of $251 million for the Dec. quarter of 2013 compared to $235.8 million in the prior year. The company only reported a utilization rate of 84%, providing more upside for operating income in the future.

Bottom line
With a potential bottom in the domestic drilling market and record international margins, Nabors Industries appears primed for a rebounding market. Unfortunately for investors new to the story, the stock has already jumped to yearly highs. The good news is that the stock hasn't soared to the same extent as Helmerich & Payne or Patterson-UTI, leaving it trading around 13 times forward earnings. The number appears very reasonable, especially compared to the 18x forward earnings of Patterson-UTI.

The best investment in oil services?
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Mark Holder has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers