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Goldman Sachs reiterated its Buy rating on Weatherford International plc (NASDAQ:WFRD) with a price target of $137.00. Following a recent technology conference hosted by WFRD in Houston, the firm's conviction in the stock remains strong. The conference included meetings with CEO Girish Saligram, CFO Arun Mitra, and other senior management and customers, showcasing WFRD's industry-leading technology.
The company's technology is designed to enhance processes, automation, and digitalization for its customers. Goldman Sachs believes that WFRD's innovative solutions have the potential to drive revenue growth independently of general market trends, such as rig count expectations. This is because of the low current penetration rates of certain technologies offered by WFRD.
Goldman Sachs anticipates that as WFRD introduces its new solutions to customers on a pilot basis, the recognition of the benefits could lead to wider adoption across operations. This adoption is expected to contribute to the company's top-line growth, margin expansion, and free cash flow improvement. The firm views WFRD's approach as unique, transitioning from focusing on internal operational optimization to leveraging technology-driven growth.
While acknowledging that large-cap peers may also benefit from industry trends, Goldman Sachs notes WFRD's first-mover advantage and comprehensive solutions supported by extensive R&D. The current share price suggests WFRD is trading at approximately a 4.0x through-cycle EV/EBITDA multiple and a 14% free cash flow yield. Goldman Sachs argues that this valuation is unduly pessimistic, as it implies an annual revenue decline of 3-5% through 2030.
In contrast, given WFRD's technological differentiation, Goldman Sachs believes that at least low single-digit revenue growth is achievable, even in a scenario where industry activity levels remain flat. This outlook underpins their continued endorsement of the stock at the current price levels.
Weatherford International has been the subject of revised forecasts from investment firm Citi, which lowered the company's price target to $130 from $155, citing potential impacts of subdued activity in offshore and onshore operations. Despite this, Citi still anticipates a growth of 4% for Weatherford, translating to $5.86 billion in revenues for the coming year.
Weatherford also recently acquired Datagration Solutions Inc., a move expected to enhance the company's digital offerings and streamline operating efficiencies. The acquisition is set to integrate Weatherford's digital solutions with Datagration's unified data models, thus improving decision-making throughout the well lifecycle.
Citi's analysis projects significant free cash flow for Weatherford, with over $500 million in 2024 and nearly $750 million in 2025. The revised price target reflects a 7x multiple of EBITDA and an 8% free cash flow yield. The company's outlook includes a target for a 30% return on invested capital and a continued focus on net working capital efficiency and reducing interest costs.
InvestingPro Insights
Weatherford International's (NASDAQ:WFRD) strong technological positioning, as highlighted by Goldman Sachs, is reflected in its financial performance. According to InvestingPro data, the company's revenue growth stands at 13.55% for the last twelve months as of Q2 2024, with a robust EBITDA growth of 25.67% over the same period. This aligns with Goldman Sachs' expectation of revenue growth driven by WFRD's innovative solutions.
InvestingPro Tips suggest that WFRD is trading at a low P/E ratio relative to near-term earnings growth, with a current P/E ratio of 13.01. This supports Goldman Sachs' view that the current valuation may be overly pessimistic. Additionally, the company's profitability over the last twelve months and analysts' predictions of profitability this year reinforce the positive outlook.
While the stock price has fallen significantly over the last three months (-28.26% according to InvestingPro data), this could present an opportunity given the company's strong fundamentals and technological edge. Investors seeking more insights can find 5 additional tips on InvestingPro, providing a comprehensive view of WFRD's investment potential.
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