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Will Noble Corporation Perform In-Line with Industry ETFs?

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Noble Corporation’s returns and key drivers

Oilfield equipment and services (or OFS) companies such as Noble Corporation (NE) are affected by rig counts and energy prices. In the past year, West Texas Intermediate (or WTI) crude oil’s price has fallen ~10%.

Noble Corporation’s one-year return of -18% net of dividends is at par with the VanEck Vectors Oil Services ETF’s (OIH) return of -16%. NE makes up 2.3% of OIH. The Energy Select Sector SPDR ETF (XLE), the broader energy industry ETF, has produced a -14% one-year return.

NE’s peer Halliburton (HAL) has performed better than NE, producing a -10% one-year return net of dividends. NE significantly outperformed the US offshore rig count, which fell 44% in one year.

Noble Corporation has, however, underperformed the SPDR S&P 500 ETF (SPY), which has returned ~1% during the same period. Read Market Realist’s series Halliburton’s Challenges before the Oil Recovery Begins to understand Halliburton in depth.

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How correlated are Noble Corporation and crude oil prices?

The correlation coefficient between Noble Corporation’s stock price and crude oil prices from March 2015 to the present is 0.54. This indicates a relatively strong degree of correlation between crude oil prices and Noble Corporation’s stock prices.

Analyzing NE’s performance and its strategies

In March 2016, Noble Corporation said that it was preparing one rig for cold stacking. In addition, it announced that the delivery of Noble Lloyd Noble, a jack-up newbuild, would be delayed by 30–60 days due to an accident.

Despite NE’s recent efforts to lessen its debt, its net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio is quite high. NE’s backlog was $6.9 billion by the end of 2015, 32% below what it was a year prior.

On the other hand, NE’s strong offshore rig fleet management, long-term contracts, steady operating margin, strong capital expenditure plan, and recent free cash flow generation could help it to pull out of this difficult period.

Despite the challenges, Noble Corporation could be expected to perform steadily in the medium to long term.

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