Weatherford Upgraded At Barclays On Promising Cash Flow Outlook

In a report published Monday, Barclays analyst David J. Anderson upgraded the rating on

from Underweight to Equal-weight, while maintaining the price target at $12. Weatherford reported 2Q15 results with a slight operational miss but positive free cash flows. The company also reiterated its 2015guidance for positive free cash flows. "While its 2H15 outlook was bleak, WFT expects improved 2H15 net income with the benefit of over $1bn of annual cost savings to date, of which ~30-40% is "perennial", implying ~$0.50/sh of structural pre-tax savings, from an improved support ratio (42% now vs. 45% at end of 2014)," analyst David Anderson wrote. The company is not expected to return to positive earnings until early 2016 "as NAM struggles with weak client mix, ~85% land concentration, a "heavy" cost structure, and flushing out artificial lift inventories at "suppressed" margins," Anderson added. Weatherford has indefinitely postponed its plans to divest its land rig but intends to reduce its positive cash flows to reduce its $7.2 billion net debt. CEO Bernard Duroc-Danner's policy of focusing on improving the existing portfolio rather than considering M&A opportunities is appreciable. In the report Barclays noted that "stabilizing international results, NAM performance likely at or near bottom, and Zubair coming to a close" had mitigated the downside risk associated with Weatherford's shares, although there was still "limited upside." The EPS estimates for 2015 and 2016 have been reduced from ($0.20) to ($0.25) and from $0.50 to $0.30, respectively.