Thanks to a dome of cool air that is enveloping much of the eastern United States, natural gas prices are back in freefall, falling roughly $1 per thousand cubic feet (Mcf) since just the start of May to a recent $3.36 per Mcf. Meanwhile, oil prices have been on a tear, rising more than $10 a barrel in that time to a recent $108 a barrel for West Texas Intermediate crude.
For companies that produce a considerable amount of both oil and gas, it’s hard to know if the good (oil) outweighs the bad (gas). Yet insiders at certain energy companies have no such confusion. They are aggressively buying company stock while share prices meander. Perhaps their bullishness stems from the fact that their companies aren’t really dependent on energy prices and instead are focused on providing services and equipment to the industry.
|1. Nabors Industries Ltd. (NYSE:NBR)|
|Make no mistake, many energy insiders long for the good old days of 2007 and 2008, when triple-digit oil prices fueled a vigorous amount of capital spending on both energy exploration and drilling equipment. Nabors Industries Ltd. (NYSE:NBR), which leases more than 500 drilling rigs (mostly onshore), was a clear beneficiary back then, as shares traded for around $35 five years ago. That was a reasonable price to pay for a company that earned more than $2.50 a share in both 2006 and 2007.But a subsequent plunge in oil prices led to a drop in demand for Nabors Industries Ltd. (NYSE:NBR)’s gear, and per-share profits are likely to slip below $1 this year. Shares now trade for less than half as much as they did five years ago. Analysts at Goldman Sachs think it’s time to anticipate better days ahead, “with management confirming that (this year’s second quarter) should mark the bottom for earnings.”
To be sure, Goldman Sachs’ analysts are generally bearish on drilling equipment providers, and have a “sell” rating on rival Patterson-UTI Energy, Inc. (NASDAQ:PTEN), for example. They are concerned that drilling budgets may dry up well before year’s end, leading to lowered forecasts. Yet Nabors Industries Ltd. (NYSE:NBR) appears to be well insulated from a possible looming slowdown, thanks to heavy investments in new rigs that are among the industry’s most efficient.
The multi-year outlook for Nabors Industries Ltd. (NYSE:NBR) is also looking perkier. Analysts expect earnings per share (EPS) to rebound to around $1.25 in 2014 and $1.75 by 2015. Free cash flow should exceed $2 a share by then, according to Goldman Sachs. If that happens, look for the company’s annual dividend (currently 16 cents a share) to get a significant boost.
Insiders clearly see better days ahead. In just the past few weeks, four company directors bought 138,000 shares at an average price of $14.90. That’s a $2 million buy-in, coming on the heels of a $1 million purchase back in May by company director James Crane. The fact that oil prices are now back in triple-digit territory likely underscores the generally improving outlook for this beaten-down energy company.