NBR Continues to Underperform in the Oilfield Services Industry
Nabors Industries’ operating cash flows and capex
In this article, we’ll take a look at how Nabors Industries’ (NBR) operating cash flows have trended over the past few quarters. We’ll also discuss how its free cash flow (or FCF) has been affected given its capital expenditure (capex).
NBR’s cash from operating activities (or CFO) fell sharply, by 78% in fiscal 3Q15 over fiscal 3Q14. NBR generated $88 million in CFO in fiscal 3Q15. NBR’s revenues fell in the past year following crude oil’s price fall and upstream companies’ exploration and production budget reductions.
Nabors Industries’ free cash flow
NBR’s FCF was volatile in the 11 quarters leading up to fiscal 3Q15. NBR’s capex fell by 63% in the past year as of fiscal 3Q15. Although NBR’s capex fell, it could not offset the CFO fall. This led to FCF deterioration in the year. In fiscal 3Q15, NBR’s FCF was -$91 million compared to -$81 million one year ago.
In comparison, Oceaneering International (OII) saw a 308% FCF rise in fiscal 3Q15 over fiscal 3Q14. OII is NBR’s similar market cap peer. It generated $128 million FCF in fiscal 3Q15.
NBR makes up 0.03% of the iShares Russell 1000 Value ETF (IWD), but for investors who would like energy exposure, energy makes up 12.2% of IWD.
NBR’s capex and cash flow target
NBR expects fiscal 2015’s capital spending to be less than $900 million. This is more than a 50% fall from its fiscal 2014 capex, which also included acquisitions.
In fiscal 2016, the company is scaling down its newbuild programs and expects capex to fall further to $700 million. In the company’s fiscal 3Q15 conference call, its chief executive officer commented that management was committed to generating positive free cash flow.
Next, we’ll discuss NBR’s historical valuation multiples.
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