Weatherford International (WFT) is in better shape than it previously seemed. Less than a week after the oil and gas services provider took steps to tackle its nearly $6 billion of debt, Jefferies says the Swiss-based company is now better positioned for the remainder of the fiscal year.
Analysts at Jefferies on Monday maintained their Buy rating as Weatherford has "likely lowered its near-years debt repayment burden with its recent exchangeable notes." The $1.1 billion offering of exchangeable senior notes due 2021, coupled with a $150 million payment for its Zubair construction contract in Iraq, lifted analysts' confidence regarding positive free cash flow in 2016.
Even with the inflow of $150 million, Jefferies lowered its price target to $8 from $9 based on the exchangeable note dilution, saying that "much has to go right for us to be enthusiastic, but our base case sustains our Buy rating."
Shares of Weatherford were up by more than 7% in Monday trading, at around $6.56.
Analysts at Barclays echoed a similar overall sentiment, upgrading their rating to Overweight from Equal Weight and raising their price target by $1 to $8.
In a research note Monday, Barclays said the exchangeable notes and the Zubair settlement had "meaningfully shifted the narrative away from the balance sheet, removing considerable downside risk." With the near-term liquidity concerns removed, the analysts noted that Weatherford now has the ability to increase captial expenditures and reinvest in the business.
Weatherford signed a lumpsum contract for $843 million in June 2012 to build a processing facility, according to Reuters. The contract has lost almost $600 million to date, according to the Barclays note. The settlement of $150 million was finally agreed upon after three years.
But the analysts also said that Weatherford's story "remains challenged" with a highly levered balance sheet and a weaker operational position than its competitors -- Schlumberger (SLB), Halliburton (HAL) and Baker Hughes (BHI) -- adding that Weatherford does not have the scale to compete with lower-quality assets.
Nevertheless, Barclays analysts believe that adding Weatherford to the portfolio "at current levels offers a compelling risk/reward scenario."