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Reading Upstream Operators’ Capexes and Nabors Industries’ Margin

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Nabors Industries’ earnings margin

From 1Q16 to 1Q17, Nabors Industries’ (NBR) EBITDA (earnings before interest, tax, depreciation, and amortization) margin, or its EBITDA as a percentage of its revenue, contracted to 17.8% from 27.1%.

A company’s EBITDA margin is a measure of its operating earnings. Nabors Industries’ makes up 0.01% of the iShares Dow Jones US ETF (IYY). From March 31, 2016, to March 31, 2017, IYY rose 15%, compared to the ~42% rise in NBR’s stock price during the same period.

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Upstream operators’ capex cuts

From 1Q16 to 1Q17, 19 of the largest US upstream companies reduced their capexes (capital expenditure) by a total of 21%. NBR’s EBITDA margin, which improved to ~26% in 4Q16, was dented again in 1Q17. Typically, lower upstream capex results in better revenues and operating margins for oilfield equipment and services (or OFS) companies.

EBITDA margins of NBR’s peers

Weatherford International’s (WFT) EBITDA margin was 6% in 1Q17. Schlumberger’s (SLB) EBITDA was 22% in 1Q17, while Flotek Industries’ (FTK) EBITDA margin was 3.2% in the quarter.

Next, let’s discuss NBR’s revenue and earnings.

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