Weatherford International Earnings: Elevated Production Activity Offsets Usual Seasonal Declines

No-moat Weatherford WFRD beat its first-quarter guidance as several regional end markets proved much stronger than anticipated, further supported by earlier-than-expected contract additions (initially slated for the second quarter). Total revenue increased 26% year over year and decreased 2% sequentially, slightly less than the low- to mid-single-digit revenue drop typical of first-quarter performances. Profitability also outperformed expectations with the firmwide adjusted EBITDA margin approaching 23%. This reflects a more than 600 basis point increase year over year, nearly double the guidance management issued in February. Accelerating activity in international markets on top of this quarter’s outperformance leaves Weatherford well-positioned for a very strong fiscal 2023. We’re therefore raising our fair value estimate to $62 from $53 following the results.

We still forecast revenue growth averaging 5% over the next five years, but we’ve raised our 2023 estimate by about $100 million, implying a 14% year-over-year increase versus our prior estimate of 11%. Our FVE raise is more specifically driven by our improved outlook for Weatherford’s profitability potential moving forward. Compared to our prior outlook, we now estimate the firmwide operating margin will sit about 200 basis points higher on average, approaching 15% by 2027. Addressing elevated demand will require additional capital investment. Yet, we expect Weatherford’s enhanced profitability will strengthen its free cash flow generation moving forward, exceeding $300 million over the next three years on average, by our estimate.