Weatherford International Earnings: International Production Activity Drives Strong Performance

No-moat Weatherford WFRD posted another strong quarter, with total revenue increasing 20% year over year and 7% sequentially. The firmwide adjusted EBITDA margin held steady at 23% and will likely remain at a similar level through year-end. After incorporating second-quarter results, we’re raising our fair value estimate to $67 from $62 based on an improved outlook for Weatherford’s international operations, particularly the Middle East and Latin America. Management raised guidance for full-year guidance for revenue, now estimating mid- to high-single-digit growth year over year. It raised guidance for adjusted EBITDA margin by 100 basis points, implying year-over-year profitability improvements of at least 350 basis points year over year.

Based on current industry activity levels, the increased targets are attainable, in our view. As oil and gas activity accelerates worldwide, we see opportunities for Weatherford and peers to command favorable pricing that will lift margins, further supported by easing input cost inflation. By our estimate, firmwide adjusted EBITDA margins will average 22% through 2027, well above its historical three-year average of 16%, and a substantial improvement from its prepandemic average of negative 3%. A favorable global operating environment will undoubtedly benefit Weatherford over the near to medium term, but we’d previously been skeptical about the firm’s through-cycle performance potential. Since completing bankruptcy restructuring in 2019, Weatherford has adopted a much more selective contracting strategy, moving away from winning market share for the sake of winning market share in favor of prioritizing high-margin projects. This gives us more confidence in Weatherford’s ability to handle inherent industry volatility, which should stabilize performance through the cycle.