Stressed Out: Weatherford Making All the Right Moves

 | Mar 09, 2016 | 2:15 PM EST
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This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list.

Stability is one way to alleviate stress, and while Weatherford International (WFT) shares spiked more than 10% in Wednesday afternoon trading, the company took steps this week to bolster its long-term outlook. 

Weatherford has experienced a 5% bump over the past four weeks, but its chart looks like a roller coaster over that time period, falling as low as $5.84 on March 8 and peaking at $7.32 on March 3.

On Monday, Weatherford announced the closing of a previously announced 115 million share public offering that netted the company $630.3 million.

That same day, J.P. Morgan Securities, which acted as one of the underwriters of the offering, published a report stating that while the company isn't out of the woods yet, it has what it takes to survive.

Read about companies feeling less stressed

"Weatherford's successful secondary equity offering highlighted the enduring value of the diversified service company's franchise, in our view, as well as the primary focus on the balance sheet by energy investors in the current environment," wrote J.P. Morgan analyst Sean Meakim.

"The rationale for the equity raise is to reduce debt and improve liquidity, and the upsized offering (+25%) was in stark contrast to Weatherford's ill-fated, M&A-fueled attempt last fall. We think the issuance puts debt repayment plans on firmer footing through 2017 and adds a buffer should free cash generation fall short of targets (or into 2017)," Meakim said.

Oil's recent upward trend is lifting the entire oil sector as the commodity appears to have successfully navigated the fog of an 18-month decline. However, while macro circumstances out of Weatherford's control are improving, the company is also placing itself in a better position.

"The offering should improve Weatherford's position in extending its revolver, and a 1Q close remains on track. Others may attempt to follow suit, particularly as banks appear to be extracting tougher concessions in recent credit renegotiations. We acknowledge Weatherford is not out of the woods, but the move is another sign to the bears that Weatherford has levers to pull through this downturn, and we think the shares can lead in a recovery," said Meakim.

For more on Real Money's 20 distressed companies to watch:

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out: Weatherford Latest to Join Energy Equity Club

Stressed Out: Ultra Petroleum's Debt Payment Due Today is Ultra Urgent

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we will add this here to cheaply protect our downside a bit BOUGHT SPY SEP 244 PUT AT 2.70 ...

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