Nabors' (NBR) Share Price Plunges 11% as Citi Downgrades to 'Sell'

Shares of Nabors Industries (NYSE: NBR) are trading more than 11% lower to $41.78 after Citi’s analyst Mark Gruber downgraded the stock to “Sell” on the back of the weak international land rig market, leverage, and a weak free cash flow (FCF) outlook.

Gruber argues that NBR is observing a decline in active rigs within the key Saudi market. This is one of the reasons why the bank sees EBITDA at NBR’s international sector plunging by a third next year.

“While NBR has restructured to drive FCF, this headwind coupled with contract roll in the U.S. likely prevents healthy positive FCF in 2021. As such, we foresee the company making little progress to improve its leverage (at 3.7x but heading to >7x),” Gruber wrote in a note issued to clients yesterday.

“With so much debt, even if NBR’s market cap were at near-zero the 2022 multiple would not normalize at 5-5.5x, however we see this as alright given early stage of a multi-year market recovery”. We assume the stock trades at 7x on 2022 given some recovery optionality and, while we maintain our target price of $35, we switch from NAV to an EBITDA multiple given uncertainty toward rig values abroad”.

Citi also maintained its “Neutral” rating on Patterson-UTI (NASDAQ: PTEN), but it lifted the stock price target to $4.50, slightly higher than yesterday’s closing price of $4.43.

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