Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Nabors Industries Stock Rocketed Higher Today

By Jason Hall – May 28, 2020 at 6:43PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A Wall Street analyst raising his price target can do wonders for a stock price, especially when there's high short interest.

What happened?

Shares of oil drilling contractor Nabors Industries (NBR -13.96%) soared on May 28, gaining 16.4% from the previous day's close. The big jump was the product of a share price target increase by a Wall Street analyst.

So what

An analyst with Citigroup significantly lifted his price target for Nabors today to $35 per share. That's more than double the prior $15.50 target and a surprising move considering how far demand for onshore drilling activity has fallen during the 2020 oil crash. The analyst, Scott Gruber, cited steps to preserve liquidity and cut costs as being key reasons for the price upgrade.

Oil rig worker setting pipe.

Image source: Getty Images.

Now what

The interesting thing about today's huge spike for Nabors stock is that it was already trading well above Gruber's revised price target, closing yesterday at almost $39 per share. Moreover, Gruber continues to rate the stock "neutral" with the risks that demand for drilling activity could further deteriorate. 

So what pushed Nabors stock up so sharply? In short, it's almost certainly short-sellers getting scared out of the stock, i.e., buying shares to cover their position. Over the past few months, the percent of Nabors stock sold short has gone up 133% from an already high 9.6% to more than 22% at the last count. 

And a lot of those shorts have been burned terribly. Nabors stock price has gained 343% since prices bottomed out on April 22. As a result, shorts who have closed their positions over that time have had to pay substantially more -- potentially a lot more -- than what they collected when they sold it short. 

This is exactly the risk of shorting a stock: If the stock goes up, your losses only go higher. 

With that said, don't let the massive run-up in Nabors' stock bely the reality: The company faces a hard road ahead, and despite a high-quality fleet of powerful and advanced drilling rigs, the 2020 oil collapse and likely  recession will have major ramifications for its results. Combine that with a debt-laden balance sheet with upcoming maturities it doesn't have the liquidity to pay off today, and investors should tread lightly. 

Jason Hall has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Nabors Industries Ltd. Stock Quote
Nabors Industries Ltd.
$94.40 (-13.96%) $-15.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.