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On Monday, Barclays (LON:BARC) made a significant adjustment to its outlook on Nabors Industries Ltd (NYSE:NBR), downgrading the stock from Equalweight to Underweight. Accompanying the downgrade, the firm also reduced the price target from $53.00 to $28.00, signaling a cautious stance on the company’s financial prospects. The stock, which has declined over 60% in the past year and currently trades near $30, has shown significant volatility with a beta of 1.96. According to InvestingPro analysis, the company appears to be slightly undervalued based on its Fair Value calculations.
Nabors, recognized as one of the world’s leading land drilling contractors, operates approximately 65 rigs in the Lower 48 states of the United States and about 85 internationally, with operations spanning countries like Saudi Arabia, Argentina, Colombia, Kuwait, and Mexico. The downgrade by Barclays reflects concerns over potential declines in the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) in the second half of 2025 and into 2026, particularly in the Lower 48 region, compared to its main competitors, Helmerich & Payne (HP (NYSE:HPQ)) and Patterson-UTI Energy (NASDAQ:PTEN).
Barclays analysts anticipate that Nabors will experience a more significant decline in its Lower 48 EBITDA relative to peers and also foresee modest downturns in the company’s international business, excluding the SANAD joint venture with Saudi Aramco (TADAWUL:2222). While the SANAD partnership, where Nabors holds a 50% stake and Saudi Aramco is the sole customer, is viewed as a potential growth area with the 11th newbuild rig expected to start in the Kingdom (TADAWUL:4280) in the second quarter and four more in the next 12 months, there are concerns about the venture’s financial sustainability.
The SANAD joint venture’s free cash flow is currently being allocated to fund a newbuild rig program, aiming for a total of 50 rigs. However, Barclays expresses skepticism regarding the timeline for Nabors to receive cash distributions from SANAD, suggesting that the breakeven point may not be achieved until after the company’s projected target of late 2027.
Furthermore, escalating capital expenditure requirements at SANAD, estimated to be $198 million in 2023, $271 million in 2024, and $360 million in 2025, could potentially lead to a cash shortfall as early as next year. This situation may necessitate additional funding from the joint venture partners, which could increase the pressure on Nabors’ leverage ratio. The company’s current leverage ratio stands at approximately 4 times net debt to 2025 estimated EBITDA, excluding SANAD. InvestingPro analysis highlights concerning financial metrics, including a debt-to-equity ratio of 7.87 and negative return on assets of -0.45%. For deeper insights into Nabors’ financial health and detailed analysis, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Nabors Industries reported first-quarter earnings that surpassed analyst expectations, with adjusted earnings per share reaching $2.18 against a projected loss of $2.88 per share. The company’s revenue was $742.78 million, exceeding forecasts of $708.81 million and marking a 1.7% increase from the previous year. This strong performance was attributed to improvements in the international drilling segment and the acquisition of Parker Wellbore. Despite challenges in the U.S. drilling segment, where adjusted EBITDA fell to $92.7 million from $105.8 million due to reduced rig count and increased expenses, Nabors remains optimistic about recent rig additions in the Lower 48 region.
The company expects its Lower 48 rig count to slightly increase to 63-64 rigs in the second quarter, while the international rig count is projected to reach 85-86 rigs, including contributions from Parker. For the full year 2025, Nabors anticipates adjusted free cash flow of approximately $80 million, excluding tariff impacts. In related developments, Citi analysts revised their outlook on Nabors, reducing the stock price target from $50 to $38 while maintaining a Neutral rating. The revision incorporates the effects of the Parker Drilling acquisition and potential risks from lower crude oil prices. Citi’s forecasts for Nabors’ EBITDA in 2025 and 2026 are set below consensus estimates, reflecting cautious expectations for the company’s future performance.
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