On Dec 27, Zacks Investment Research downgraded onshore contract driller Nabors Industries Ltd. (NBR), to a Zacks Rank #4 (Sell).
Why the Downgrade?
Being the largest land drilling contractor in the world, the business of Nabors depends primarily on the price of crude oil. Since this June, the price of West Texas Intermediate (WTI) crude has tumbled more than 49% and is currently trading at $54.73 per barrel.
Amid weak crude pricing, the upstream energy companies are spending less on exploration and production activities and hence have been demanding less for land drilling services which has hurt Nabors’ operations.
Moreover, the land drilling market has been highly competitive owing to plentiful supply of rigs which led to falling dayrates. This came as a big blow to drillers like Nabors as dayrates are the main source of the company’s revenues.
Additionally, we are concerned about Nabors’ fundamentals as its debt-to-capitalization ratio is more than 40%. Over the last few years, the company has kept on adding debt to its balance sheet for a fleet recapitalization program.
For a stock ridden with challenges, the Zacks Consensus Estimate for the fourth quarter of 2014 fell more than 2% to 42 cents per share over the last 60 days. Moreover, for the full year, the Zacks Consensus Estimate was revised lower by almost 2% to $1.19 per share over the same time frame.
Stocks to Consider
One can consider better-ranked players in the energy sector like Sandridge Mississippian Trust II (SDR), SandRidge Mississippian Trust I (SDT) and Seadrill Partners LLC (SDLP). All these stocks sport a Zacks Rank #1 (Strong Buy).
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