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Wednesday, August 01, 2012 9:22:04 PM
Looking at approximately 25 quarters of data, the year-over-year operating margins, both for the Drilling as well as Completion & Production Services have started to move up again toward the 2007 highs. This is a result of management's effort to slowly restructure the company whose share price is weighed down by Oil & Gas pricing pressure as well as from 2011 controversy surrounding NBR's CEO. After performing valuation on the company, the shares can be valued at $22.50 to $24.00 per share by the end of 2013.
The $22.50 valuation is derived by assuming that the firm only pays off $500M in debt instead of $1B, only generates $1.50 in EPS in 2013 instead of industry estimates of $2.20 while reporting $2B in 2013 EBITDA. I have used 2013 EBITDAx of 5.15x, 2013 EV/REVx of 1.39x and 2013 P/Ex of 9.5x.
Breaking the firm down and performing SOTP analysis yields $24.15. This assumes a 2013 P/REVx of 1.39 and 2013 P/EBITx of 7.2 for Drillers while 0.95x and 2.78x respectively for Completion & Production services. Moreover, if NBR becomes a takeover targets due to above mentioned catalysts, a modest 15% takeover premium for NBR yields an average price of $26 per share.
Assuming that Pressure pumping decreases by another 10% and U.S. lower 48 by 5% in 2013 while all other segments increase by a modest 3%, I still come up with a 2013 EPS of $1.9. Assuming an industry estimated forward P/Ex of 9.5x, that still yields a price of approximately $18.00.
With current share price trading at $13.90, the shares still offers a 30% margin of safety to investors who are pessimistic about a major NBR turnaround.
"My well came in big, so big, Bick and there's more down there and there's bigger wells. I'm rich, Bick. I'm a rich 'un. I'm a rich boy." - Jett Rink
Don't believe anything I say. Do your own DD. Insert huge disclaimer here ____________.
Recent NBR News
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