Why Weatherford International's Shares Plunged

Is this meaningful or just another movement?

Travis Hoium
Travis Hoium
Jul 25, 2012 at 12:00AM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Weatherford International (NYSE: WFT) fell 10% today after releasing earnings.

So what: Earnings numbers weren't all bad with revenue growing 24% to $3.7 billion and adjusted earnings per share of $0.25, or $0.03 below estimates. But the company announced a $100 million estimate for potential settlements of multi-agency, U.S. investigations into the company's practices in other countries. This is not only a big number; it also is a red flag for investors.

Now what: Investors hate a bad earnings report, but they hate federal investigations and bad accounting even more. The company added another $41 million worth of tax expense as part of a review of its tax payments, something it doesn't appear to have under control. The investigations into the company's actions in sanctioned countries are likely to pile on further concerns about the company. Shares may trade at a seemingly attractive 10 times 2012 earnings estimates, but there are too many red flags for me to be a buyer today.

Interested in more info on Weatherford International? Add it to your watchlist by clicking here.