Nabors (NBR) Can Avoid Balance Sheet Challenges - Jefferies

Jefferies analyst, Brad Handler, sees a trading rally in shares of Nabors (NYSE: NBR) as debt related concerns are unlikely to impact the company in the near term. No change to the Hold rating with the price target moving down to $7.

Investor concern about NBR’s balance sheet appears to be a contributing factor to the company trading at a discount to the group but Jefferies' analysis suggests two things:

1) write-downs likely fall below the $1.2B “threshold” (by 4Q16) that would challenge the company’s 60% leverage covenant

2) $3.4B in liquidity should prove more than adequate—even in our “stress test” we see cash needs of less than $600MM.

NBR's underperformance to PTEN is also due to its lack of exposure to North America (NAM) service recovery (offered in PTEN’s pressure pumping division). Yet, as the very weak 2016 and less-certain recovery in NAM loom large, we think there is value in NBR's exposure to a somewhat less vulnerable non-NAM.

Longer term risks remain as PTEN faces

1) breach of its restrictive covenant, 2.50 to 1.00 pro-forma leverage ratio, potentially as early as 2Q16, which would prevent dividend payment to shareholders

2) a negotiation with its creditors to renew its credit facilities—currently including a $500MM Revolver and $100MM Term Loan—that mature on 9/27/17

For an analyst ratings summary and ratings history on Nabors click here. For more ratings news on Nabors click here.

Shares of Nabors closed at $6.62 yesterday.

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