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Barclays Slashes Weatherford Price Target On Execution Risk, Highly Levered Balance Sheet

Barclays Slashes Weatherford Price Target On Execution Risk, Highly Levered Balance Sheet

Weatherford International Plc (NYSE: WFT)'s business is left severely impaired after two decades of mismanagement, poor execution and a culture unaccustomed to accountability, a Barclays analyst said. 

The Analyst

Barclays analyst David Anderson downgraded shares of Weatherford from Overweight to Equal Weight and reduced the price target from $6 to $3.50, suggesting about 42-percent downside from current levels.

The Thesis

Mark McCollum, who took over the reins of Weatherford, is the "right man for the job," but he could be constrained by the company's $7.1 billion in net debt and the low-hanging cost opportunities that were already picked up in the third year of a turnaround, Anderson said in a Tuesday note.

Weatherford's $1-billion profit increase target — which it hopes to reach by the close of 2019 — incorporates $700 million in cost savings that would be reached by structural efficiencies such as outsourcing of G&A and IT operations and supply chain optimization, the analyst said. Realizing those efficiencies "will take time," he said. 

The remaining $300-million profit increase is based on an $800-million revenue increase driven by 1-percent market share gain, the renegotiation of pricing discounts and an improved go-to-market strategy, according to Barclays. 

Anderson said he sees this as a tough proposition due to the market share war in international operations. The sale of land rigs, with $359 million held for sale value, and another $500 million of targeted divestitures are critical to fund $489 million in debt maturities in March 2019, he said. 

"In light of the heightened execution risk and limited means to delever its balance sheet, shares of WFT should trade at a healthy discount to its larger peers, after which leaves little equity upside even after giving credit for planned asset sales and much of the targeted improvements, most of which will be implemented in 2019." 

The Price Action

Weatherford shares are down about 56 percent over the past year.

At the time of writing, the shares were slumping 6.64 percent to $2.67. 

Related Links:

Weatherford's Seemingly Long, Drawn-Out Turnaround Notches a Downgrade

Weatherford Upgraded As A Recovery Could Be Coming

Photo by Nestor Galina/Flickr. 

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