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  5. NBR: I am interest in expanding my oil and gas investments to the service side of the oil and gas sector. [Nabors Industries Ltd.]
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Investment Q&A

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Q: I am interest in expanding my oil and gas investments to the service side of the oil and gas sector. Would you be able to compare three drilling companies that I am considering. I am interested in PD and NBR for on shore drilling and RIG for offshore. I would prefer a company that is profitable or projected to be soon. The focus is on growth and less on dividends. A fair amount of risk can be handled. Please compare information on these three companies.
Asked by Maureen on January 18, 2024
5i Research Answer:

PD is $1B market cap, trading at 5X earnings, no dividend. It is quite profitable now, but has a history of losing money. Debt is about 2X cash flow. Levered, but not as much as before. EPS is expected to grow about 10% this year. Free cash flow is growing. Its size and cyclicality add risk, but we like better than in prior years as financial risk has diminished. NBR is small at $650M, no dividend, no earnings in at least the past 10 years. It is expected to be profitable this year (78c per share). Even so, its valuation is very high. The stock has negative momentum and we do not find it attractive. Debt is more than 3X cash flow. RIG is the largest here at $4.6B market cap. It stopped paying dividends in 2016. The stock is off to a rough year, down 16% YTD. It has seen a couple of downgrades. Ebitda could compress further due to increased costs to mobilize newly contracted rigs for new jobs. Revenue could rise due to realized day-rate increases but this could be offset by higher operations and maintenance and SG&A costs. Revenue growth should accelerate in 2024 as Transocean commences work on new ultra-deepwater and harsh-environment projects in South America and Asia. Start-up costs should abate by 2Q which could enable margins to increase sharply as day-rates continue to rise. Free cash flow (FCF) could remain negative due to startup costs for the buyout of the Deepwater Aquila, which could cause liquidity to fall to $1.2-$1.3 billion by year-end, vs. $1.4 billion in 3Q. This could increase to $1.5-$1.7 billion by the end of 2024, reflecting an increase in FCF. Overall, PD looks the best to us, but RIG we think could have decent upside as sentiment improves after its drop. We could go either way here, but would not be interested in NBR.