Commodities

Nabors (NBR) Declined on Weak Commodity Prices

Miller Value Partners, an investment management company, released its “Deep Value Select Strategy” fourth-quarter 2023 investor letter. A copy of the same can be downloaded here. In the fourth quarter, Strategy returned +1.67% net-of-fees trailing the S&P 1500 Value Index’s +13.70% return. For the full year, the strategy returned +9.86% behind the S&P 1500 Value Index’s +21.64% due to weaker Q4 performance. Due to a weaker September and October, the strategy’s smaller cap assets suffered a large contraction in valuation, which contributed to the underperformance in the quarter. December witnessed a good comeback for the strategy. In addition, please check the fund’s top five holdings to know its best picks in 2023.

Miller Value Deep Value Select Strategy featured stocks such as Nabors Industries Ltd. (NYSE:NBR) in the fourth quarter 2023 investor letter. Headquartered in Hamilton, Bermuda, Nabors Industries Ltd. (NYSE:NBR) is a drilling and drilling-related services provider for offshore oil and natural gas wells. On January 22, 2024, Nabors Industries Ltd. (NYSE:NBR) stock closed at $78.49 per share. One-month return of Nabors Industries Ltd. (NYSE:NBR) was -9.02%, and its shares lost 55.14% of their value over the last 52 weeks. Nabors Industries Ltd. (NYSE:NBR) has a market capitalization of $742.916 million.

Miller Value Deep Value Select Strategy stated the following regarding Nabors Industries Ltd. (NYSE:NBR) in its fourth quarter 2023 investor letter:

Nabors Industries Ltd. (NYSE:NBR) and Gannett (GCI) were the two largest detractors during the quarter. The market price of Nabors shares was down more than 30% in the fourth quarter due to the recent weakening of commodity prices, which increased marketplace fears that rig utilization rates may fall further over the coming months. The company is positioned to be a beneficiary over the next couple of years from the ongoing global recovery in energy capital spending in my estimation. I also believe Nabors has significant international business that is not being appreciated by the marketplace. Their joint-venture (JV) with Saudi Aramco alone could add 5 rigs per year over the next 10 years, with each rig possibly contributing more than $10M in Earnings Before Income, Taxes, Depreciation, and Appreciation (EBITDA). In addition, as their proprietary drilling solutions and energy transition businesses further scale up it should lead to greater free cash flow (FCF) conversion given their lower capital intensity. Since the beginning of 2018, management has focused free cash flow on debt reduction, eliminating nearly $2B in debt. Nabors’s balance sheet risk has diminished, with limited near-term maturities and net debt leverage ending 2023 close to 2x. Company valuation levels are near historical extremes, Enterprise Value to EBITDA (2024 estimated) (EV/EBITDA) of only 3.6x, market cap near 1x cash flow and a normalized FCF yield greater than 50%. Nabors appears severely mispriced to me, and we have been taking advantage of the recent share price weakness by adding to our position.”

A drilling rig in the middle of an industrial mining site, surrounded by rugged terrain.

Nabors Industries Ltd. (NYSE:NBR) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 21 hedge fund portfolios held Nabors Industries Ltd. (NYSE:NBR) at the end of third quarter which was 22 in the previous quarter.

We discussed Nabors Industries Ltd. (NYSE:NBR) in another article and shared the list of most promising small-cap stocks according to analysts. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.

 

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Disclosure: None. This article is originally published at Insider Monkey.

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