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Weatherford International Plc. (NYSE:WFT) Sell-Off Persists On Disappointing Outlook And Cash Flow Concerns

Weatherford International Plc. (NYSE:WFT) has taken a significant hit, in the market, ever since it reported mixed Q3 financial results. The stock has lost more than 70% in market value over the past two months. It is also down by more than 80% for the full year, having plunged below the $1 a share level on the bearish run gaining momentum.

Sell-Off Trigger
Cash flow woes, declining revenue and Q4 guidance falling short of analyst’s expectations appears to have spooked investors. The troubled oilfield service company has also found itself on the receiving end on reporting a net loss for Q3 at the back of declining revenues. The Houston-based company has not reported any profits over the past four years. Soaring debt levels in the wake of oil prices plunging in 2014 has all but dealt the company’s sentiments a big blow in the market. The company’s debt stands at about $7.6 billion affirming the dire position it finds itself in.

Q3 Financial Results
Negative free cash flow has turned out to be the order of the day in recent years. However, Chief Executive Officer Mark McCollum insists they be on course to turn cash flow positive next year. How true that is, is still a point of discussion given that Weatherford exited Q3 with $35 million in free cash flow, way below its breakeven target. Net loss in the quarter dropped to ($199) million or 20 cents a share from ($256) million reported a year earlier. Margins rose to 10.2% from 0.4% a year earlier. Revenue was a big disappointment as it fell to $1.44 billion from $1.46 billion a year earlier. Amidst the mixed financial results, Weatherford did achieve significant milestones in the quarter. For starters, the oilfield services company did register a 68% increase in operating income. The company also did reach an agreement with lenders to extend a revolving credit facility. A $195 million increase in adjusted EBITDA according to the CEO represents a significant achievement. According to the executive, it also affirms the effectiveness of the transformation strategy that the company is relying on. During the quarter, Weatherford did divest its Laboratory service business for $205 million. It also achieved annualized recurring transformation benefits of $300 million. “I am pleased with our third quarter operating results, which once again demonstrate the strength of our transformation and its positive impact on our bottom line,” said Mr. McCollum.

Management Expectations
Weatherford has achieved 30% of its annualized transformation goal. Focus now shifts towards reaching a $1 billion run-rate improvement target before the end of next year. The company expects single-digit increases in operator spending. It also expects stronger offshore tendering activity. The management has also taken note of market conditions that could affect the run rate. Impact of transportation bottlenecks in North America is one of the underlying issues at hand. The likes of Schlumberger NBV and Halliburton Co expect lower or flat Q4 revenues because of the bottlenecks.

Analysts Reaction
Mixed analysts reactions to the Q3 earnings report could as well be the trigger behind the recent sell-off. Analysts at Jefferies insist that the Q3 report had some positives depicted by improved margins. However, their counterparts at Wells Fargo insist the news was negative siting lower than expected free cash flow. A bleak Q4 outlook is another headwind that the analysts contend is a big concern. Weatherford looks set to remain under pressure in the market until it serves another groundbreaking catalyst. Short sellers remain in firm control after the recent sell-off, as bulls stay clear of the stock. That said the oilfield services company look set to finish the year on the low as it is currently languishing at an all-time low of $0.63 a share.

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