Nabors Deserves a Better Fate

 | Jan 28, 2013 | 12:00 PM EST
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Nabors Industries' (NBR) shares almost touched $50 in 2008. Today they trade for about $16. The stock deserves a better fate.

Nabors is primarily a land driller, not a glamorous deepwater driller like Transocean (RIG) or Diamond Offshore (DO). That's one reason investors aren't excited by the stock. The balance sheet won't remind you of Apple (AAPL), either. Debt is about 83% of equity. That doesn't thrill me, but it puts Nabors squarely in the middle of the pack.

The main reason the stock is cheap is an ugly tussle over executive compensation.

Former CEO Gene Isenberg was slated to receive $100 million in compensation, which had many shareholders boiling. The 81-year-old Isenberg had led the company for a quarter of a century and built it from a pipsqueak outfit to the world's largest land driller, with more than 500 drilling rigs and close to $7 billion in annual revenue. Ultimately, he relented to the pressure and gave up the payout. I have to agree with the shareholders who squawked at the size of Isenberg's going-away present.

But investors are letting the issue of corporate governance drown out all other issues. Nabors has posted a profit every year for the past decade except for a small loss in 2009 -- when many companies had horrendous losses. The stock has risen 15% this year, partly on takeover speculation. Yet it is still priced at rock-bottom levels following two successive years of declines.

Nabors shares go for 0.8 x book value. You might think book value is a suspect measure in a company that, like Nabors, has made a lot of acquisitions. But there is relatively little goodwill in that book-value figure. The stock still looks cheap at 0.9 x tangible book value. Even with this year's pop, the shares are selling for only 8x earnings. That compares with a 10-year average of 18x. The price-to-sales ratio is also very low at 0.7.

There is a gadfly seeking to make sure that the company doesn't stay undervalued. Pamplona Capital Partners III, which owns a sizeable chunk of the stock, is pressing for changes. I don't know the folks at Pamplona, but this stock is so cheap that it wouldn't take major changes to bring about good-looking gains.



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