Massive Momentum: Can Nabors Industries Extend Its 118% Rally?

Nabors Industries Ltd. NBR is a leading land-based drilling contractor that makes money by providing advanced drilling rigs, rig-related services, performance software, automation technologies and directional drilling solutions to oil and gas producers worldwide. The company generates revenues through day-rate contracts and integrated drilling services, helping exploration and production companies drill wells more efficiently, safely and cost-effectively. NBR plays an important role in the energy value chain because its rigs and technology directly support upstream oil and gas production, which is essential for global energy supply and energy security.

Over the past six months, NBR’s shares rose 117.9% compared with 64.4% growth for the Oil and Gas - Drilling sub-industry and 22.9% increase for the Oil and Energy sector, clearly demonstrating strong relative performance during the period.

After a strong and eye-catching rally, the stock has drawn significant investor interest. Many are now wondering what’s fueling the surge and whether there’s still room for it to climb. Let’s take a closer look at the key growth drivers, core fundamentals and possible risks to assess whether the momentum can continue or if it’s time to be more cautious at current prices.

6-Month Price Performance Comparison

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What’s Behind the Surge in NBR Stock?

Significant Debt Reduction and Strengthened Balance Sheet: Nabors has executed a series of transformative financial transactions that have materially improved its capital structure. Since the end of 2024, the company has reduced the net debt by approximately $554 million, bringing it to the lowest level since 2005. This significant deleveraging was achieved through the sale of Quail Tools, strategic debt redemptions and a refinancing that extended maturities, substantially derisking the company's financial profile.

Strong Momentum and Market Share Gains in the Lower 48: Despite a challenging market environment, NBR is demonstrating operational excellence and gaining traction in the Lower 48. The company's rig count has shown strong momentum, exiting the fourth quarter of 2025 with 62 rigs and recently increasing to 66 rigs. This growth, driven by wins with public operators across the Permian, Eagle Ford and Haynesville basins, outpaces the overall market and showcases the competitiveness of its high-spec rig fleet.

Visible and Attractive International Growth Pipeline: NBR possesses a unique and highly visible international growth trajectory that is unmatched by many peers. The company expects to add approximately 10 net rigs in 2026, including newbuilds and reactivations in Saudi Arabia, Argentina and Mexico. This built-in growth, backed by multiyear contracts with national oil companies, provides a clear line of sight to future revenue and EBITDA generation, insulating the company from volatility in other markets.

Successful Integration and Synergy Realization From Parker Wellbore: The integration of the retained Parker Wellbore assets is progressing exceptionally well, exceeding initial expectations. Management reported achieving an annualized synergy run rate of $63 million, surpassing the ambitious $60 million target. The company remains on track to generate at least $70 million in EBITDA from these operations in 2026, demonstrating a laser focus on execution and the ability to extract maximum value from strategic acquisitions.

What Factors Could Constrain NBR’s Growth?

Declining Revenues and Profitability in Core Segments: NBR reported a sequential decline in its fourth-quarter 2025 financial performance, with operating revenues falling to $798 million from $818 million in the third quarter. This top-line contraction, caused by the divestiture of Quail Tools and market challenges, led to a decrease in adjusted EBITDA to $222 million from $236 million in the previous quarter. This downward trend suggests the company is struggling to maintain its earnings power.

Persistent Free Cash Flow Consumption by Key Joint Venture: A significant red flag for investors is the consistent and substantial cash consumption by the SANAD joint venture in Saudi Arabia. For the full-year 2026, Nabors expects SANAD to consume between $100 million and $120 million of adjusted free cash flow. This persistent drain on liquidity offsets the positive cash generation from the rest of the business and delays the company's ability to aggressively pay down its debt.

Margin Pressure in the Lower 48 Drilling Operations: Despite a recent uptick in rig count, NBR's core Lower 48 drilling business is experiencing margin compression. The company's guidance for the first quarter of 2026 predicts a daily adjusted gross margin of approximately $13,200, which is a decrease from the $13,303 reported in the fourth quarter of 2025. This indicates that even with increased activity, pricing power or cost structures are being challenged in this key market.

Heavy Dependence on a Single Joint Venture Partner for Growth: A substantial portion of Nabors' projected international growth is tied to its SANAD joint venture with Saudi Aramco. While valuable, this concentration creates a dependency risk. Any change in Aramco's drilling plans, budget or payment terms, as seen with the recent non-renewal of three low-margin rigs, could have an outsized and immediate impact on Nabors' revenue and cash flow projections.

Final Verdict on NBR’s Potential

NBR has made meaningful progress in strengthening its balance sheet, reducing net debt by roughly $554 million to its lowest level since 2005 through asset sales, debt redemptions and refinancing efforts. The company is also gaining momentum in the Lower 48, expanding its rig count and capturing market share, while boasting a visible international growth pipeline supported by multiyear contracts and successful synergy realization from the Parker Wellbore integration.

However, recent quarterly results revealed declining revenues and adjusted EBITDA, reflecting pressure in core segments and the impact of divestitures. Persistent free cash flow consumption from the SANAD joint venture, margin compression in Lower 48 operations and heavy reliance on a single international partner add meaningful financial and operational risks.

With both positives and potential challenges in play, it may be wise for investors to take a wait-and-see approach. Holding the stock for now and looking for a better entry point could be a more prudent move before adding this Zacks Rank #3 (Hold) company to a portfolio.

Key Picks

Investors interested in the energy sector might look at some better-ranked stocks like TechnipFMC plc FTI, sporting a Zacks Rank #1 (Strong Buy), USA Compression Partners USAC and Oceaneering International, Inc. OII, both carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

TechnipFMC is valued at $26.16 billion. It is a global energy technology company. TechnipFMC designs, manufactures and services advanced subsea and surface solutions for the oil and gas industry, helping energy producers improve efficiency, reduce costs and support the transition toward more sustainable energy systems.

USA Compression Partners is valued at $3.91 billion. The company is a leading provider of natural gas compression services in the United States. USA Compression Partners specializes in the design, operation and maintenance of compression equipment for the energy sector, focusing on helping customers optimize their natural gas infrastructure.

Oceaneering International is valued at $3.86 billion. The company is a global provider of engineered services and products to the offshore energy, aerospace and defense industries. Oceaneering International specializes in underwater robotics, remotely operated vehicles and subsea engineering solutions for offshore oil and gas exploration and production.

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