The energy sector showcased immense resilience despite macroeconomic headwinds and geopolitical chaos. Moreover, an expected rise in global demand for oil and gas, on the backs of the reopened Chinese economy, is poised to maintain the sector’s upward trajectory. OPEC now sees global oil demand grow by 2.33 million bpd this year.
Given this backdrop, let us look into the energy stock Weatherford International plc (WFRD), which could be the best buy this May for reasons mentioned throughout the article.
WFRD is an energy services company that provides equipment and services for the drilling, evaluation, completion, production, and intervention of oil, geothermal, and natural gas wells worldwide. The company operates in approximately 75 countries and has approximately 17,700 team members representing more than 110 nationalities and 345 operating locations.
In the first quarter of 2023, the company reported significant growth in its top and bottom line. Additionally, WFRD made senior note repayments and repurchases of $62 million, comprising $20 million of its 11% Senior Unsecured Notes and $42 million of its 6.5% Senior Secured Notes.
On April 20, a notice was issued by the company to redeem the remaining $105 million of its 11% Senior Unsecured Notes due 2024 at a redemption price of 102.750% of the principal amount, plus accrued and unpaid interest to, but excluding the redemption date.
The redemption has been considered a crucial step toward its capital structure improvement. In addition, WFRD’s President and Chief Executive Officer, Girish Saligram, anticipates the company's overall revenue to grow by mid-teens year-over-year in 2023, and adjusted EBITDA margins are projected to expand by at least 250 basis points year-over-year.
Over the past year, shares of WFRD have gained 97.1% to close the last trading session at $58.66. The stock grew 36.4% over the past six months. Wall Street analysts expect the stock to reach $91.60 in the upcoming 12 months, indicating a potential upside of 56.2%.
Furthermore, the stock is trading above the 200-day moving average of $47.06, indicating a bullish trend.
Let’s look at some of the factors that could influence WFRD’s performance in the upcoming months:
Robust Financial Performance
For the fiscal first quarter that ended March 31, 2023, WFRD’s total revenues stood at $1.19 billion, up 26.4% year-over-year, while its adjusted EBITDA increased 78.1% year-over-year to $269 million.
Net income attributable to WFRD stood at $72 million compared to a net loss of $80 million for the prior-year quarter. Its income per share came in at $0.97 compared to a loss per share of $1.14 for the year-ago quarter.
WFRD’s EBITDA has grown at 34.7% CAGR over the past three years.
Impressive Profitability
WFRD’s trailing-12-month levered FCF margin of 8.93% is 51.1% higher than the industry average of 5.91%. Likewise, its trailing 12-month ROCE and ROTC of 36.97% and 12.13% are 54.3% and 7% higher than the industry averages of 23.95% and 11.34%, respectively.
Favorable Analyst Estimates
The consensus EPS estimate of $1.14 for the fiscal second quarter ending June 2023 and $4.64 for the current year (ending December 2023) indicates substantial year-over-year increases.
Likewise, the consensus revenue estimates for the same periods of $1.24 billion and $4.98 billion reflect improvements of 16.1% and 14.9% year-over-year. Moreover, WFRD topped consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
POWR Ratings Reflect Promising Outlook
WFRD’s POWR Ratings reflect a promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. WFRD has an A grade for Growth, in sync with its robust financials and solid growth prospects.
In addition, the stock is rated B for Momentum, justified by the stock trading above its 200-day moving average. It has a B grade for Quality, consistent with its robust profitability.
WFRD ranks #2 in the 93-stock Energy – Oil & Gas industry.
In addition to the above-mentioned POWR Ratings, one can see the additional ratings for Value, Stability, and Sentiment for WFRD here.
Bottom Line
Multiple energy industry tailwinds, such as an increase in demand due to China’s reopening, and WFRD’s fundamental strength and effective operational execution, keep the company well-positioned for the upcoming quarters.
Moreover, the company’s solid financials and robust profitability could make it a wise portfolio addition this May to garner significant returns.
How Does Weatherford International plc (WFRD) Stack Up Against Its Peers?
While WFRD has been rated A, equating to a Strong Buy, one can check out these other stocks within the Energy – Oil & Gas industry: Cheniere Energy, Inc. (LNG), which has an A (Strong Buy) rating, and Centennial Resource Development (CDEV) and Unit Corporation (UNTC) which have a B (Buy) rating.
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
WFRD shares were trading at $59.27 per share on Friday morning, up $0.61 (+1.04%). Year-to-date, WFRD has gained 16.40%, versus a 10.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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