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Weatherford Slips to Sell on Rising Long-Term Debt Load


On Jul 13, oilfield service player Weatherford International plc WFT was downgraded to a Zacks Rank #4 (Sell) on negative estimate revision following weak balance sheet and unfavorable business scenario owing to low oil and gas prices.

Key Factors

Over the last 60 days, the Zacks Consensus Estimate for Weatherford’s 2017 loss has been widened to 97 cents from 93 cents. Also, for the second quarter, the Zacks Consensus Estimate for loss has been revised to 28 cents from 27 cents over the same time frame.

The company’s long-term debt load has been on the rise through all four quarters of 2016. Notably, last year, Weatherford saw its long-term debt surge nearly 30% year over year with little sign of reduction during first-quarter 2017. On top of that, cash equivalents declined almost 50% during the January-to-March quarter of this year, reversing the trend of steady improvement during 2016.

Moreover, during 2016, multiple credit rating agencies lowered the rating of the company’s debt and the company expects a further downgrade owing to unfavorable business conditions. Most importantly, as per S&P Global Ratings, the company’s senior unsecured debt is rated B – signifying highly speculative bond. Also, Moody’s Investors Services has rated senior unsecured debt at Caa1, which signifies that the bond has substantial risks.

Given the high debt load and weak credit ratings, we think Weatherford might face difficulties in generating debt capital for future growth projects. Additionally, the persistent weakness in oil and gas prices has hurt most of the upstream energy players’ exploration and production activities. This could lower the number of contracts for oilfield services players like Schlumberger Limited SLB, Baker Hughes, a GE company BHGE and Halliburton Company HAL from explorers for efficiently setting up oil and gas wells.

Weatherford’s pricing chart also lacks luster as the company fell 34.2%, comparing unfavorably with the Zacks categorized Oil Field Mechanical & Equipment industry over’s 13% decline.

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

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