Weatherford International, Friday's IBD Stock Of The Day, has been a highflier among oil stocks since its 2021 IPO. It is now teasing a buy point, looking for its first real breakout of the year.
Weatherford is one of the old, respected names in the oil field services trade, formally established in 1987, but with a reputation running back to the World War II era. Since 1987, the company has been a heavy acquirer of small, innovative technologies.
The company has shifted its place of incorporation over the years: from Houston to Bermuda to Switzerland. The latest move, to Ireland, followed the company's filing for Chapter 11 bankruptcy protection in July 2019. It relisted on the Nasdaq in June 2021, after wiping $6.2 billion in debt off its balance sheet. Suddenly one of the "newer" names among oil stocks, Weatherford reported $1.7 billion in long-term debt at the end of 2023, down from $2.2 billion a year earlier.
Heavy International Exposure
Revenue is just about evenly spread across Weatherford's three reporting segments: drilling and evaluation, well construction and completions, and production and intervention. The company has heavy international exposure, operating in 75 countries and generating nearly 80% of its $5.135 billion in 2023 revenue outside the U.S. Its largest non-U.S. markets are Latin America, as well as the Middle East, North Africa and Asia.
In overview, oil has become more challenging to produce in all of those locations. That makes services like Weatherford and larger peer oil stocks including SLB, Halliburton, Baker Hughes — and a long list of others — critical partners in the oil and natural gas production process.
U.S. oil prices have, for now, leveled out in the $72 to $76 a barrel range, though they were moving out to near $79 as of Friday. That evening-out marks at least a brief pause after two decades of extreme and sometimes extended price swings. In the U.S., leading oil producers are taking a more measured approach to production, and paying closer attention to debt and costs, a sharp divergence from the industry's past.
That hints that prices could find some sense of balance. But the test will be as demand, particularly from China, continues to recover from the pandemic-era drain. That is expected to play out across this year and into 2025. Most forecasts see oil markets as growing very tight, suggesting higher prices, as that process takes place. But the International Energy Agency's most recent report, on Thursday, saw demand growth as slowing and oil supply growth sufficient to keep pace.
"Higher global oil supply this year, led by the United States, Brazil, Guyana and Canada, should more than eclipse the expected rise in world oil demand," the agency said in its February Oil Market Report.
Weatherford Outperforms Most Oil Stocks
Weatherford shares have gained more than 820% since their 2021 IPO. The stock rallied 92% in 2023. The stock has spent all of 2024 so far in a consolidation. Shares dived in late January, along with much of the industry, after reports that Saudi Aramco planned to cap its oil production at 12 million barrels per day. Prior plans had called for an increase to 13 million bpd.
Weatherford quickly rebounded from the 200-day line, especially following its fourth-quarter report. Earnings rose 70% vs. a year earlier while revenue climbed 13%. Analysts expect solid EPS growth in 2024 and 2025.
The stock has since formed a six-week consolidation, right next to two other bases, with a 102.64 buy point. Risk tolerant investors could use the Feb. 8 high of 100.89 as an early entry.
The stock's relative strength line, though moving higher this month, is still lagging after hitting a peak in November. But it is outperforming many peers in the oil and gas space.
Piper Sandler raised Weatherford's price target to 138, from 135 on Feb. 8 following the Q4 report, and kept an overweight rating. Bank of America raised its price target on the stock Monday, to 123 from 120. It rates the stock a buy.
IBD ranks WFRD stock No. 2 in the Oil/Gas-Machinery-Equipment industry group. But the group lags at No. 180 among 197 industries tracked by IBD. Weatherford sports a solid Composite Rating of 89.
