Nabors Surges 155% in a Year: Here's How to Play the Stock

NBR Outperforms Industry, Sector & Peer Companies (PTEN, RIG & PDS)

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Nabors isone of the largest land-drilling contractors in the world that conducts oil, gas and geothermal land-drilling operations. Over the past year, the stock has been moving north, leaving investors wondering whether the positive trend will continue or if it is due for a pullback.

Recently, NBR reported its second-quarter 2026 results, posting a wider-than-estimated adjusted loss, while revenues beat the same. So, before we dive into how investors should react, let's take a quick look at the company’s current standing and outcomes.

Factors Favoring Nabors Stock

2026 Earnings Estimates: For 2026, the Zacks Consensus Estimate projects Nabors’ loss to narrow from $12.23 per share a year ago to $2.96, reflecting a 75.8% year-over-year improvement. Moreover, the consensus mark for revenues is pegged at $3.3 billion for 2026, implying a 4.3% year-over-year rise. The Zacks Consensus Estimate for Precision Drilling, Transocean and Patterson-UTI’s 2026 earnings indicates a 19.5%, 250% and 77% year-over-year growth, respectively.

NBR’s EPS Estimates

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NBR’s Discounted Valuation:From a valuation perspective — in terms of forward price-to-sales ratio — Nabors is trading at a discount of 0.4 compared with the industry average of 3.12.

NBR’s Valuation Overview

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Stronger-Than-Expected Q2 Execution and Upgraded Outlook: Nabors delivered a strong second quarter, with consolidated revenues rising 4% sequentially to $815 million and adjusted EBITDA reaching $222 million, above the upper end of its implied guidance. EBITDA margin expanded 107 basis points to 27.2%, supported by a 54% fall-through. Importantly, the strength was broad-based, with every operating segment exceeding expectations. Management subsequently raised its full-year 2026 EBITDA outlook to $920-$930 million, above both its previous expectations and 2025 levels. This combination of operational outperformance, improving margins and higher guidance provides evidence that the company is executing effectively and could support further earnings momentum.

Significant Growth Runway From the Saudi Arabian Market: Nabors has a particularly strong position in Saudi Arabia through its SANAD joint venture, which operates 55 rigs and holds approximately 28% of the country's land drilling market, making it the largest land drilling contractor there. SANAD has already deployed 16 newbuild rigs, with 34 rigs still to be delivered under its 50-rig newbuild program. Moreover, two previously suspended rigs have returned to service. Since nearly three-quarters of SANAD's fleet is exposed to natural gas, the company is well positioned to benefit from Saudi Aramco's efforts to expand gas production. The remaining newbuild deliveries create a multi-year source of potential earnings growth.

Challenges That Pressure NBR Stock

Free Cash Flow Remains Relatively Weak Despite Strong EBITDA: Although Nabors generated $222 million of adjusted EBITDA in the second quarter, adjusted free cash flow was only $12 million. The company expects to consume approximately $40 million of consolidated adjusted free cash flow in the third quarter, including roughly $65 million of cash consumption by SANAD. For the full year, management expects only $20-$30 million of adjusted free cash flow. This relatively modest cash generation compared with EBITDA highlights the capital-intensive nature of the business, particularly while SANAD's newbuild program remains underway. Investors seeking strong near-term free-cash-flow yields may therefore find the company's cash conversion less compelling than its EBITDA growth initially suggests.

Heavy Capital Spending Could Constrain Shareholder Returns: Nabors continues to require substantial capital investment to support its growth strategy. The company expects 2026 capital expenditures of $710-$730 million, including $325-$335 million for the SANAD newbuild program. Third-quarter CapEx is expected to reach $245-$255 million, with approximately $130 million allocated to SANAD. Management also indicated that 2027 capital spending may be at least in line with 2026 and potentially slightly higher, including roughly $330-$350 million related to SANAD. This sustained capital intensity could limit free cash flow available for debt reduction or shareholder returns, especially if drilling activity or pricing fails to strengthen as expected.

Middle East Geopolitical Tensions Remain a Material Risk: Nabors' international growth story is heavily tied to the Middle East, particularly Saudi Arabia, Kuwait and Oman. While operations continued without interruption during the recent conflict, management acknowledged persistent cost pressure related to the Middle East conflict. The CFO said the financial impact of these cost pressures was broadly in line with guidance, but the company's significant regional exposure means a deterioration in geopolitical conditions could create operational, logistical or cost-related challenges. Since SANAD represents a major component of Nabors' international growth program, prolonged disruption in the region could also affect deployment schedules, customer activity and the timing of newbuild-related earnings.

U.S. Drilling Customers Remain Disciplined on Capital Spending: The improving Lower 48 market is encouraging, but Nabors acknowledged that operators continue to exercise discipline when allocating capital. The company expects the average Lower 48 working rig count to rise to approximately 73 in the third quarter, but daily adjusted gross margin is expected to remain roughly flat at $13,800 because fewer near-term renewal opportunities limit additional pricing gains. Management expects activity to build progressively rather than accelerate sharply. This suggests that the recovery remains dependent on customer spending decisions and commodity economics. If oil or natural gas prices weaken, operators could delay drilling programs, limiting Nabors' ability to increase utilization and pricing.

Final Words on NBR Stock

Nabors stock stands out, backed by its recent outperformance versus peers — Precision Drilling, Transocean and Patterson-UTI — as well as strong second-quarter execution, higher EBITDA guidance and narrowing expected losses, all of which point to improving operational momentum. Its discounted valuation and strong Saudi Arabia position, supported by SANAD’s large fleet and newbuild program, also provide meaningful growth potential.

However, weak free-cash-flow generation despite strong EBITDA and heavy capital spending could constrain shareholder returns. In addition, Middle East geopolitical risks and disciplined U.S. customer spending may limit near-term growth. In this context, investors should consider staying invested in the Zacks Rank #3 (Hold) company for now.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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