Weatherford International (NYSE: WFT) shares plummeted sharply in the last twelve months despite the increasing demand for the oilfield service industry. The company’s shares have been dipping on wider than expected losses and mounting debt level, which increases the risk to its liquidity position. The company has posted a loss of $1.95 per share in the latest quarter, higher from the loss of $0.22 per share in the previous quarter.
Oil prices improved sharply in the last couple of quarter, allowing E&P companies to invest in growth opportunities. Thus, demand for oilfield services companies increased sharply in the last couple of quarter. Weatherford International revenue jumped only 5% in the latest quarter, compared to high double-digit growth in its peer group.
“Q4 results reflect a period of adjustment as we hit the reset button,” CEO Mark McCollum says, adding that WFT expects “significant sequential improvements in EBITDA during Q1.”
Higher Debt for Weatherford Impacts Traders Sentiments
The company has been experiencing higher debt burden and interest expenses over the past few quarters. Its long-term debt stands around $7.1 billion, and the company has to pay $600 million in annual interest expenses – which is creating a huge burden on its earnings potential and cash generation potential.
Weatherford International recently sold its U.S. hydraulic fracturing and pump-down perforating assets for $430 million in cash and its used proceeds to reduce outstanding debt.
Analysts, however, have been showing their concerns over the debt burden and limited potential to cover the outstanding liabilities. Barclays downgraded its price target to $3 from $6. The firm criticized the company for poor execution, mismanagement, and a culture unaccustomed to accountability.
The firm said, “CEO Mark McCollum is the right man for the job but could be constrained by WFT’s $7.1B in net debt and the low-hanging cost opportunities that already were picked up in the third year of a turnaround.”
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