Nabors Industries: A Contrarian Play on Undervalued Oil Services Resilience

The recent analyst downgrades of Nabors Industries (NBR) have painted a gloomy picture, driven by macroeconomic headwinds and collapsing oil price forecasts. Yet beneath the pessimism lies a company trading at valuation multiples far below its historical averages, with a Saudi Arabian joint venture (Sanad) that could prove to be a hidden engine of growth. As NBR prepares for its July 23 earnings report—a potential catalyst for re-rating—this is a classic contrarian moment. Let's dissect why the bears might be missing the bigger picture.

The Downgrade Narrative: Oil Prices and Operational Headwinds

Analysts have been quick to slash price targets in 2025, citing two main factors: declining crude prices and weak U.S. drilling activity. Barclays, for instance, cut its rating to “Underweight” in May, citing a “challenging macroeconomic environment” that has pushed oil prices below $70 per barrel—a level that pressures NBR's margins. JPMorgan and Citi echoed these concerns, noting that lower oil prices reduce demand for oilfield services, while U.S. rig counts have stalled due to cost inflation and “churn” in operator contracts.

Even Morgan Stanley, which maintains an “Overweight” rating, trimmed its price target to $75 from $115, acknowledging risks to upstream spending. Yet this focus on near-term pain overlooks critical positives:

Why the Bulls Have a Case: Valuation and Resilience

1. Undervalued Metrics:
   NBR's EV/EBITDA of 3.91 is near its lowest in a decade, well below its five-year average of 5.6. Meanwhile, its forward P/E of -8.13 (due to Q1's profit recovery) and P/S ratio of 0.15 suggest the market is pricing in a worst-case scenario. Compare this to peers like Schlumberger (SLB), which trades at an EV/EBITDA of 6.2.

1. Sanad JV: A Growth Tailwind Ignored by Bears:
   The $1.3B Sanad joint venture with Saudi Aramco—accounting for 25% of NBR's international revenue—is a linchpin. While analysts cite its “cash shortfall risks,” the JV's long-term contracts with Aramco, tied to Saudi Arabia's 2030 oil production goals, provide a predictable revenue stream. Even in a low oil price environment, this partnership could stabilize margins as U.S. operations face headwinds.

2. Q1 2025 Resilience:
   Despite U.S. rig count declines, NBR posted a net profit of $33M in Q1—its first profit in two quarters—and generated $7.8M in EBITDA from its Parker Wellbore acquisition. International operations, led by Saudi Arabia, saw revenue rise 15% year-over-year. While U.S. daily rig margins dipped to $14,276 (due to inflation), this is still above pre-2022 levels.

Catalyst Alert: July 23 Earnings Could Turn the Tide

The market's focus on short-term U.S. rig count weakness ignores two critical turning points:
- Oil Price Bottoming?: Brent crude has stabilized near $70/barrel, with Goldman Sachs forecasting a rebound to $85 by year-end. If oil prices stabilize or rise, NBR's earnings could surprise to the upside.
- Sanad's Q2 Performance: The JV's first full quarter of 2025 activity will be reported in July. Positive updates here could alleviate fears about its financial health and reframe NBR as a play on Saudi Arabia's energy infrastructure boom.

The Contrarian Trade: Buy Ahead of Earnings, Target $50

The consensus 12-month price target of $36.33 is skewed by recent downgrades. However, bullish scenarios—like oil prices rebounding to $80/barrel and Sanad delivering on its $500M annual revenue target—could push NBR to $50+, matching Morgan Stanley's prior $75 target. Even a moderate recovery to $45 would represent a 40% upside from current levels.

Risks Remain:
- A prolonged oil price slump below $60 could delay the earnings turnaround.
- U.S. rig count declines could persist if Permian operators cut budgets.

But for contrarians, the asymmetry is compelling: NBR is priced for disaster, yet its balance sheet (net debt of $1.2B vs. $280M in free cash flow in 2024) is manageable, and its Saudi exposure offers a growth lever unappreciated by the market.

Final Verdict: Buy NBR Ahead of July 23 Earnings

The analyst downgrades have created a buying opportunity in a stock that's now trading at a valuation discount to its peers and historical norms. With the Saudi JV's growth trajectory and oil prices showing tentative signs of stabilization, the earnings report could be the spark to reignite investor confidence. Set a target of $50, with a stop-loss below $25. This is a high-risk, high-reward bet—but one where the math of value finally aligns with contrarian logic.