Crude Oil Inventories Pressuring Nabors Stock (NBR)

The Uptick In Crude Inventories Is Leading To A Breakdown In Nabors Stock (NBR)

The $4.5B oil driller earned more than $1 in EPS last year and is now projected to lose $0.22 and $0.12 this year and in 2016, respectively. The collapse in oil and gas prices is expected to cut sales in half from 2014 to 2016 ($3.4B-$3.5B). These projections may actually be too optimistic if this week’s U.S. crude oil inventory number is any indication. On July 1st, inventories rose 2.39M barrels vs analyst estimates of +766K. This snapped a 9 week streak of declines and huge turnaround from last week’s -4.9M barrel print.

Nabors stock (NBR) trades at a price to sales ratio of 0.63x (using the last twelve months), but it is actually misleading when you factor in the projected future revenue for 2016. Even though the stock is nowhere near the $30 level it hit last year, NBR trades at a forward price to sales ratio of 1.30x, so it isn’t exactly as cheap as it appears.

Unusual Options Activity

Roughly 6,500 Aug $13 puts were purchased for $0.62-$0.66 On July 1st. This follows the 7,000 Aug $12 puts that were purchased on June 25th and 26th for $0.22-$0.27. Q2 earnings are due out on July 21st.

Technical Analysis

nabors stock chart nbr decline july 2015

After a failed test of resistance on June 30th, Nabors stock price appears to be breaking down below support at $14. In the near-term there is downside risk to $13, or even the $11.36-$12.00 over the next few months. A buy stop loss reference on a bearish position can be placed above $14.76.

Nabors Industries (NBR) Options Trade Ideas

Here are some options trading ideas that I am contemplating:

Buying the Aug $14 put for $1.10 or better

Stop loss- $0.50

1st upside target- $2.00

2nd upside target- $2.50

Or

Buying the Aug $12/$13 bear put spread for a $0.32 debit or better

(entails buying the Aug $13 put and selling the Aug $12 put, all in one trade)

Stop loss- None

1st upside target- $0.65

2nd upside target- $0.99

Again, these are just ideas for those inclined to play it on the bearish side over the near-term. Trade safe and thanks for reading.

 

Twitter:  @MitchellKWarren

No position in any of the securities mentioned at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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