On Friday, Citi downgraded Nabors Industries Ltd. (NYSE:NBR) stock, shifting its stance from Buy to Neutral and adjusting its price target to $75 from the previous $110.
The revision reflects a more conservative outlook on the company's financial performance, particularly concerning its earnings before interest, taxes, depreciation, and amortization (EBITDA) and free cash flow (FCF) for the year 2025.
Citi's revised forecasts for Nabors indicate a 2025 EBITDA of $934 million, which is 5% lower than the consensus. The firm's expectations for the company's 2025 FCF have also been significantly reduced to $90 million, which is more than 50% below the consensus. These projections are based on an anticipated average of 71 active rigs in the Lower 48 states of the U.S., with an average daily margin of $13,200 per day.
The new price target of $75 is based on approximately three times the company's projected 2025 EBITDA. This valuation multiple is slightly below Nabors' historical average. The adjustment is deemed appropriate by Citi due to Nabors' high debt levels and the limited FCF expected in the near term.
Additionally, Citi has also lowered its forecast for Nabors' EBITDA in fiscal year 2026 by 4% to $1.01 billion, which is 8% below the consensus. The downgrades in forecasts and target price suggest a more cautious view of Nabors' financial health and market position in the coming years.
In other recent news, Nabors Industries reported a strong second quarter in 2024, with total adjusted EBITDA surpassing expectations. Despite a 6% decline in the US Lower 48 rig count, the company maintained robust daily margins and reported revenue growth in its international operations and other segments. Nabors also made significant strides in sustainability and debt reduction, with net debt decreasing by almost $50 million to $2.04 billion.
The company's revenue from operations stood at $735 million, with notable growth in the International Drilling segment, Drilling Solutions, and Rig Technologies. The year-end 2024 rig count is projected to be slightly lower than the second quarter's count, mainly due to merger activities.
Nabors Industries plans to deploy five additional rigs internationally throughout 2024, aiming for growth in the international market and focusing on advanced technology solutions. On the downside, the US Lower 48 market saw a decline in activity and clients are cautious about their plans for 2024, particularly in gas-focused basins. These are among the recent developments for Nabors Industries.
InvestingPro Insights
In the wake of Citi's downgrade of Nabors Industries Ltd. (NYSE:NBR), real-time data and insights from InvestingPro can provide investors with a deeper understanding of the company's current financial situation. According to InvestingPro data, Nabors has a market capitalization of $621.52 million and is facing significant challenges, as evidenced by a negative P/E ratio of -3.63, which worsens to -210.15 when adjusted for the last twelve months as of Q2 2024. This indicates that the company is not currently generating profits relative to its share price.
Furthermore, the revenue for the last twelve months as of Q2 2024 stands at $2.93 billion, with a slight decrease of 2.41% in revenue growth, which could be a point of concern for investors looking for growth opportunities. Despite the revenue decline, the company maintains a solid gross profit margin of 40.24%, suggesting that it can effectively control its cost of goods sold. However, the negative return on assets of -1.09% highlights inefficiencies in utilizing its asset base to generate earnings.
InvestingPro Tips highlight several critical factors for investors to consider. Analysts have revised their earnings estimates downwards for the upcoming period, and they do not anticipate the company will be profitable this year. Additionally, the stock price has experienced significant volatility, with a 22.02% decrease over the last month and a 50.23% decline over the past year, reflecting investor concerns.
For those interested in exploring more about Nabors Industries, there are additional InvestingPro Tips available at https://www.investing.com/pro/NBR, which can provide valuable insights for making informed investment decisions.
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