Here's Why Weatherford International Plc's Stock is Jumping Today

The oilfield service company reported fourth-quarter results and announced an alliance with Nabors Industries.

Matthew DiLallo
Matthew DiLallo
Feb 2, 2017 at 12:13PM
Energy, Materials, and Utilities
An oil rig platform drill floor.

Image source: Getty Images.

What happened

Investors in Weatherford International (NYSE:WFT) are breathing a huge sigh of relief on Thursday after the oilfield service company's fourth-quarter earnings came in ahead of expectations, suggesting that the worst of the oil market downturn is in the rearview mirror. Those results, along with the announcement of an alliance with Nabors Industries (NYSE:NBR), fueled a 14% rally in the stock by 11 a.m. EST.

So what

Weatherford reported a 4% sequential increase in revenue, which rose to $1.41 billion. Driving that recovery was an 8% uptick in North American revenue as shale drillers started putting rigs back to work. That improvement in oilfield activity drove a 273 basis point improvement in margins, enabling the company to generate $171 million in free cash flow during the quarter. That said, the company did report an adjusted loss of $303 million, or $0.32 per share. However, that was $0.02 per share ahead of analysts' expectations and a narrower loss than last quarter.

In addition to those improving results, Weatherford also announced that it agreed to form an alliance with Nabors Industries to focus on delivering enhanced drilling solutions to the onshore oil and gas market in the lower 48 states. The collaboration will bring Weatherford's expertise in well construction as well as its managed pressure drilling (MDP) solutions, directional drilling capabilities, and drilling hardware together with Nabors feet of MPD-ready SmartRigs as well as its land-optimized measurement while drilling systems. Weatherford hopes that this alliance will create a new sales channel by jointly delivering a new drilling concept for the future. 

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Now what

Weatherford continues to take steps back toward profitability. While it is not there yet, the company is generating free cash flow, and the oil market is clearly showing signs that it is starting to improve. Meanwhile, it's entering into new markets with Nabors, which both companies hope will drive up returns and growth in future quarters.

That said, the company remains a distant fourth behind oilfield service leaders Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), and Baker Hughes (NYSE:BHI), which have all remained profitable during the downturn. Meanwhile, Baker Hughes and Schlumberger have taken advantage of opportunities to improve their competitive positions, widening the gulf between them and Weatherford. In other words, it still has some catching up to do.