EUR 850.00 For Business Accounts Only

Morningstar | Weatherford Reports Solid Fourth Quarter Owing to Transformation Benefits

Weatherford reported solid fourth-quarter results. Revenue fell 1% but would have increased 1% in the absence of the sale of part of the company's land drilling business. Adjusting operating margin fell to 5.1% from 5.9% previously, but would have improved to 6.9% had a $25 million litigation settlement charge not occurred in the Western Hemisphere segment. This improvement (after excluding for the charge) was driven chiefly by ongoing benefits from the company's transformation plan. Our fair value estimate and no-moat rating are unchanged.

The markets reacted quite positively to the quarter. This is possibly because the company finally made solid progress on paying down its net debt, although a good deal of this was due to proceeds from the land drilling business sale, which was known in advance. Still, the market has seemingly been myopically focusing on the net debt number, and its improvement has allowed the company's shares to rally and move in the direction of our $2 per share fair value estimate.

We have been impressed by Weatherford's recent slate of new products, such as its Vero automated connection technology for its tubular running services business or the tr1p single-trip deepwater completion system. Management has continued to introduce compelling new products even while embarking on an aggressive cost-cutting and organization reshaping plan in 2018. Continued progress on new technology introduction, particularly in the company's core product lines like tubular running services, completion equipment, and artificial lift, could lead us to revise our negative moat trend assessment for the company. Still, we are taking a cautious attitude on this matter because of missteps by prior management as well as the potential for the company's high debt load to hamper adequate investment in existing product lines.