On Wednesday, Citi updated its outlook on NASDAQ:WFRD, Weatherford International (NASDAQ:WFRD) plc, adjusting the company's price target to $130 from the previous $155, while still affirming a Buy rating on the stock. The investment firm revised its forecasts for Weatherford, acknowledging that the company is likely to experience the effects of subdued activity in both offshore and onshore operations in the U.S. and Saudi Arabia.
For the third quarter, the firm now expects Weatherford's EBITDA to be nearly flat compared to the second quarter, decreasing by 5% to $338 million. The adjusted EBITDA is projected to be $350 million, slightly below the FactSet consensus of $357 million. Looking ahead to the fourth quarter, Citi anticipates an improvement in EBITDA to $359 million, with adjusted EBITDA at $371 million, which is again lower than the consensus of $384 million.
Despite these adjustments, Citi still predicts growth for Weatherford in the coming year, albeit at a more conservative rate of 4%, translating to $5.86 billion in revenues. Additionally, the firm expects adjusted EBITDA margins to expand to 25.5%. For the year 2025, Citi forecasts an EBITDA of $1.45 billion and an adjusted EBITDA of $1.5 billion, which is 6% below the current consensus.
The investment firm also projects significant free cash flow (FCF) for Weatherford, with over $500 million in 2024 and nearly $750 million in 2025, representing a 52% conversion rate. The revised price target of $130 reflects a 7x multiple of EBITDA and an 8% free cash flow yield, according to the analysis provided by Citi.
In other recent news, Weatherford International has made significant strides in its financial performance and strategic growth. The energy services company reported a 10% year-over-year revenue increase in its second quarter 2024 earnings call, primarily driven by its international business. Despite facing social unrest and operational disruptions, Weatherford introduced a shareholder return program, which includes a $1 per share annual dividend and a $500 million share buyback over three years.
Moreover, Weatherford's strategic acquisition of Datagration Solutions Inc., a firm known for data integration, analytics, and machine learning, is expected to enhance the company's digital offerings and amplify the capabilities of its existing platforms. This move aims to improve decision-making throughout the well lifecycle and streamline operating efficiencies across Weatherford's enterprise.
These recent developments indicate Weatherford's commitment to innovation and growth. The company anticipates mid-single digit revenue growth in the latter half of 2024, with a more pronounced increase expected in Q4. Additionally, the company's outlook includes a target for a 30% return on invested capital and a continued focus on net working capital efficiency and reducing interest costs.
InvestingPro Insights
Weatherford International plc (NASDAQ:WFRD) has drawn attention with its financial performance and market valuation. According to InvestingPro data, the company has a market capitalization of $6.92 billion and trades at a P/E ratio of 13.75. This valuation comes as analysts acknowledge the firm's ability to maintain profitability, with a notable gross profit margin of 35.03% over the last twelve months as of Q2 2024. Additionally, Weatherford's revenue growth of 13.55% during the same period indicates a robust expansion in its financials.
InvestingPro Tips for Weatherford suggest a mixed outlook. While the company is trading at a low P/E ratio relative to near-term earnings growth, indicating potential undervaluation, it is also trading at a high Price / Book multiple of 5.63. Furthermore, the company's liquid assets exceed short-term obligations, which provides financial flexibility and stability. With 7 analysts having revised their earnings downwards for the upcoming period, investors might exercise caution. However, it's worth noting that analysts predict the company will be profitable this year and it has been profitable over the last twelve months. For those seeking more comprehensive insights, there are additional tips available on InvestingPro's platform.
Weatherford's strong performance is not just a recent phenomenon; the company has provided a high return over the last decade and has continued to perform well over the last five years. Such historical data could be a reassuring factor for long-term investors. With the next earnings date slated for October 23, 2024, stakeholders will be watching closely to see if the company's strategic operations align with Citi's projections and if the anticipated growth trajectories hold true.
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