What: Shares of Weatherford International (NYSE:WFT) are down 10.7% as of 2:25 p.m. EDT Monday. The common theme for so many stocks today is continued fears of the U.K. leaving the European Union. Adding insult to injury for Weatherford is that the active rig count in the U.S. took an unexpected dip after signs that things were starting to look at little better in the oil patch.
So What: When it comes to widespread sell-offs like the one we have seen over the past couple of days, investors need to ask one question: What kind of tangible impact does the news event du jour impact the bottom line of the company? So let's try to unpack the connection between Weatherford and Monday's sell-off.
Let's start with Brexit market panic. Wall Street's justification of Brexit fears is that it brings a lot of uncertainty to the global economic model. So a lot of those managers and traders have decided to sell shares and ask questions later. Looking deeper into the company's financials and its business model, it's awfully hard to find a connection. All of the company's debt is set at a fixed rate, so it's not as though there is any risk of higher interest rates. Also, Weatherford's geographic breakdown of business isn't that dissimilar to its peers, so it's not as though a slowdown in Europe would impact Weatherford any more so than other oil services companies.
Then, there is the rig count decline. Rig counts in the U.S. have ticked up over the past couple weeks as slightly higher oil prices are getting producers to spend a little on drilling activity. This decline isn't really anything to write home about -- it's a decline of only a few rigs -- so it's also hard to say that this is enough to send Weatherford's stock plummeting.
Now What: It's really hard to see why Wall Street is so bearish on Weatherford today. By comparison, its peers Schlumberger, Halliburton, and Baker Hughes are only down 2.2%, 4.1%, and 6.2%, respectively, even though Monday's news will have the same impact for all companies here. Monday's sell-off is another example of why investors should not overreact to wide sweeping share price declines. Very rarely will they have a long term impact on the company's ability to grow shareholder value. There are reasons to wonder if Weatherford can indeed deliver shareholder value over the long term, but Monday has nothing to do with it.