A Drilling Boom (14/02/2023)

Stocks climbed on Monday as investors await the January consumer price index report, which will be announced on Tuesday and reveal if price increases have slowed in response to the central bank's rate hikes. Investors appear to be betting big on Tuesday's positive CPI report, which shows declining inflation and points to the possibility that the Fed would pause or alter its course regarding rate increases.

Meanwhile, in the Gulf, major stock markets ended with varied outcomes. Oil prices?fell as investors focused on concerns about immediate demand prior to the U.S. inflation data release.

• The fourth-quarter net profitability of Adnoc Drilling,?increased by 61%?as revenue reached a record and the company supported its parent in increasing production capacity.
• The company reported that its net profit for the three months ending in December increased to $234M in a filing to the Abu Dhabi Securities Exchange, where its shares are traded. Revenue increased by 27% annually to $733M during the reporting year as more rigs were added to the fleet to increase operations.?
• Adnoc Drilling anticipates the strong profitability momentum to continue this year, with revenue forecast for 2023 between $3B and $3.2B, a 20% annual growth.?Additionally, it projects a net profit of between $850M and $1B in 2023.

Why it matters

With the help of its fleet expansion program, Adnoc Drilling quickly expanded its activities last year, increasing the number of active rigs by 16, bringing the total to 115. Additionally, it earned significant contracts last year, including three framework agreements worth $4B.?

• Zillow Group (Z)?stock increased as much as 5.2%?in early trading on Monday after Evercore ISI analyst Mark Mahaney upgraded shares of the online house-buying platform to “outperform” from “in line” on anticipations that residential real estate will peak in Q1 in terms of current home sales and home prices.
• Mahaney predicts that the rise may continue and advised investors to purchase shares in anticipation of what may be a "rapid revival" in the housing market. The company increased its price objective from $34 to $61, representing a potential gain of approximately 44% from Friday's finish. Zillow's shares have increased 33% in 2023.

Why it matters

Mahaney noted Zillow's capacity to keep up strong earnings before interest, taxes, depreciation, and amortization (EBITDA) margins. Additionally, the analyst pointed out that residential real estate is continuing to secularly migrate to online channels and concluded that Zillow has given itself optionality through both product development and acquisitions.

• Ford Motor Company?(F)?wants to construct a?$3.5 billion facility?in Michigan that will employ at least 2,500 people and produce cheaper batteries for a variety of new and old electric vehicles.?Battery production would begin in 2026 at the facility, which would be located on land being prepared for industrial development about 160 kilometers west of Detroit.
• Ford estimated that it would produce?enough batteries annually to power 400,000 automobiles.?The factory outside of Marshall would make lithium-iron-phosphate (LFP) batteries, which are less expensive than the nickel-cobalt-manganese chemistry now used in many EV batteries.

Why it matters

But this comes as tensions between the U.S. and China remain high, with the Biden administration providing tax incentives to companies building a U.S. supply chain for EV batteries. The use of metals or other components from China in EV batteries will be prohibited in order for customers to receive the full $7,500 per vehicle U.S. tax credit.