Global Energy Demand Will Spur Drilling Activity And Automation

Key Takeaways

• Strong global energy demand and energy security initiatives are driving multi-year drilling contracts, ensuring revenue stability and growth opportunities across key regions.
  
• Technological advancements and successful integration of acquisitions are boosting margins, expanding market presence, and enhancing free cash flow for potential shareholder returns.
  
• Ongoing margin pressure, international uncertainty, high capital needs, slow diversification, and heavy debt expose Nabors to significant operational and financial vulnerability amid sector headwinds.

Catalysts

Provides drilling and drilling-related services for land-based and offshore oil and natural gas wells in the United States and internationally.

• Robust global energy demand growth-especially for natural gas in emerging markets-paired with increasing LNG exports supports ongoing and future drilling activity across key geographies where Nabors operates, underpinning long-term revenue stability and growth potential.
  
• The acceleration of national energy security initiatives, particularly in regions like the Middle East, is driving significant new multi-year drilling rig awards (e.g., SANAD joint venture's 10-year, 50-rig program with firm deployment milestones), providing unmatched contract visibility and undergirding multi-year backlog, which enhances future earnings visibility.
  
• Rising industry adoption of automation, digitalization, and advanced data analytics is increasing demand for technologically superior drilling solutions-a core offering through Nabors' Drilling Solutions and proprietary SmartRig/performance automation platforms-enabling premium pricing and improving margin expansion prospects.
  
• The strategic integration of Parker Wellbore is delivering acquisition synergies above initial targets and strengthening Nabors' presence in high-value regions and segments (such as offshore, Alaska, and the Middle East), supporting EBITDA growth and opening new revenue streams.
  
• Ongoing focus on deleveraging, disciplined capital allocation, and improved free cash flow generation-supported by stable or increasing margins as operational efficiencies are realized-positions Nabors to lower interest costs, enhance net income, and potentially return capital to shareholders (e.g., through buybacks or dividends).

Nabors Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nabors Industries's revenue will grow by 4.7% annually over the next 3 years.
• Analysts are not forecasting that Nabors Industries will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Nabors Industries's profit margin will increase from -4.5% to the average US Energy Services industry of 7.4% in 3 years.
• If Nabors Industries's profit margin were to converge on the industry average, you could expect earnings to reach $255.9 million (and earnings per share of $15.05) by about August 2028, up from $-137.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 3.5x on those 2028 earnings, up from -3.6x today. This future PE is lower than the current PE for the US Energy Services industry at 13.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Nabors Industries Future Earnings Per Share Growth

Risks

• Persistent margin pressure in the U.S. Lower 48, with daily rig margins continuing to decline due to contract renewals at lower day rates and ongoing operator consolidation in oil basins, which could lead to further reductions in drilling activity and weaker revenue and EBITDA from this segment.
  
• Uncertainty and softening in key international markets, notably with Saudi Arabia's idling of land rigs and Mexico's investment cutbacks and slow receivables collections, increasing the risk of reduced international asset utilization and impairing revenue consistency and free cash flow.
  
• Elevated and growing capital expenditure requirements, driven by newbuild programs in the Middle East, recertification, and fleet expansion, could strain free cash flow and increase the risk of overextension, especially if rig deployments or contract wins are delayed.
  
• Dependency on oil & gas drilling demand and the slow pace of diversification into new energy or production-related services, leaving Nabors exposed to longer-term secular headwinds like decarbonization, energy transition, and potential regulatory tightening, which could erode future revenue streams and net margins if the industry shifts accelerate.
  
• High absolute debt levels, with free cash flow gains prioritized for debt reduction and significant upcoming maturities, mean any market or operational setback could threaten the company's ability to refinance on favorable terms, impact interest costs, or constrain net income available to shareholders.

Valuation

• The analysts have a consensus price target of $37.444 for Nabors Industries based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $50.0, and the most bearish reporting a price target of just $28.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.5 billion, earnings will come to $255.9 million, and it would be trading on a PE ratio of 3.5x, assuming you use a discount rate of 12.3%.
• Given the current share price of $33.57, the analyst price target of $37.44 is 10.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.