Nabors Looks Cheap Until You Cross the Cash Bridge

A quarterly earnings call is an ordinary thing to be invited to. What makes a Nabors Industries (NYSE: NBR) invitation worth stopping on is the setup around it. The stock has roughly doubled over the past year, up about 67% year to date to near $91. Even after that run it screens the way value screens are supposed to look: about 2.2x trailing enterprise value to EBITDA, near 1x book value, and a trailing price-to-earnings under 6. Most screens stop there. This one should not.

The trailing P/E is a lagging artifact. A single quarter — the third quarter of 2025 — carried enough non-recurring income that Nabors reported per-share earnings of $16.85 for that one quarter, most of the way to its entire trailing net income. Pull that out and the trailing multiple means little. The market is not actually pricing Nabors as a six-times-earnings company; its forward P/E stands near 348, its own way of saying that next year's earnings are expected to be close to zero. The recent GAAP numbers make the point without any multiple: net losses of about $15 million in the first quarter of 2026 and $22 million in the second, against adjusted EBITDA of about $205 million and $222 million in the same two quarters.

So which number is the real one — EBITDA or the cash that actually reaches shareholders? For a leveraged, capital-hungry drilling contractor, that question is the whole story.

The $900 Million Bridge

Management's full-year 2026 guidance puts adjusted EBITDA at $920 million to $930 million. Its adjusted free cash flow guidance is $20 million to $30 million. The distance between those two figures is nearly the entire investment case.

The math is reproducible from disclosed figures. Take the midpoint of that EBITDA guide, about $925 million. Subtract roughly $720 million of planned capital spending — of which $325 million to $335 million goes to SANAD, the Saudi newbuild program — and then roughly $170 million a year of cash interest on about $2.1 billion of total debt. What is left is a sliver, a few tens of millions, matching guidance. Management itself flags that the third quarter's adjusted free cash flow will be a consumption of about $40 million.

The Q2 result shows the same pattern: adjusted EBITDA of $222 million in the quarter, a net loss of $22 million, and adjusted free cash flow of just $12 million — an improvement of $60 million from the first quarter's $48 million outflow, but still single-digit millions against a quarter of heavy EBITDA. This is not a company whose EBITDA multiple represents a cash-flow floor. In most quarters it hands essentially nothing to shareholders, and the cheap EV/EBITDA of 2.2x is the market pricing a near-zero equity cash yield.

What a Re-Rating Would Require

The bull case is genuine, and it is international. Nabors' contracted Saudi and international fleet is the growth engine: management anticipates an annualized adjusted EBITDA run-rate around $1 billion in the second half, with about 73 to 74 Lower 48 rigs and roughly 94 to 96 international rigs. Cash flow inflected higher in Q2. The question is not whether the contracting exists; it is whether committed dayrates eventually convert into equity free cash flow and debt paydown. Much of that capex is prefunding contracted future revenue inside the SANAD venture — legitimate reinvestment rather than waste — but that means the cash conversion is measured in years, not quarters.

That is what separates a durable value story from a cheap multiple on a leveraged cyclical. A drilling contractor that spends nearly every dollar it earns before interest and taxes replacing and building rigs, while servicing $2 billion of debt, only creates value for equity if the reinvestment brings contracted cash flow that more than pays for itself. Until the bridge narrows — until EBITDA meaningfully exceeds the combined pull of capex and interest — the book value and EBITDA screens are describing an asset base, not a return to shareholders.

So on the third-quarter call, the number that matters is not another EBITDA beat. It is free cash flow, the direction of net debt, and whether the ~$900 million gap between EBITDA and equity cash is shrinking because it is funding contracted growth rather than merely rolling leveraged iron. If the market has already run the stock up 110% on the promise of that conversion, the burden is on the cash flow to start showing up.