3 Oil & Gas Drilling Stocks Backed by Strong 2026 EPS Growth

Industry Overview - The Zacks Oil and Gas - Drilling industry comprises companies providing rigs, equipment, and crews for oil and gas exploration and development globally, with demand driven more by contracting activity than oil prices [1][2] - Offshore drilling companies exhibit higher volatility and their share prices are more closely correlated with crude prices compared to onshore counterparts [2] Current Trends - Oversupplied Oil Market and Capital Discipline: Global oil supply has occasionally exceeded demand, keeping crude prices under pressure, and operators are prioritizing shareholder returns over production growth, limiting new rig demand [3] - Structural Growth in Natural Gas Demand: There is increasing momentum in natural gas demand due to expanding LNG exports and rising AI-driven power consumption, which may lead to stronger drilling demand in the coming years [4] - High Capital Intensity and Cash Flow Volatility: The drilling business is capital-intensive, requiring significant upfront investments, and companies may reduce capital budgets in softer markets, impacting near-term growth [5] - International Expansion and Long-Term Contracts: International markets, particularly in the Middle East and Latin America, are showing resilience, with many projects operating on multiyear contracts, providing better revenue visibility [6] Industry Performance - The Zacks Oil and Gas - Drilling industry currently holds a Zacks Industry Rank of 158, placing it in the bottom 35% of 243 Zacks industries, indicating challenging near-term prospects [7][9] - Despite the negative earnings outlook, the industry has outperformed the broader Zacks Oil - Energy sector and the S&P 500 over the past year, with a 76.1% increase compared to 34.5% and 20.5% respectively [11] Valuation Metrics - The industry is currently trading at an EV/EBITDA ratio of 13.70X, lower than the S&P 500's 17.90X but above the sector's 6.56X [14] Stocks to Watch - Noble Corporation: A leading offshore drilling contractor with a market cap of $7.3 billion, expected to see 73.1% earnings growth in 2026, and has a backlog of about $7.5 billion [16][18] - Nabors Industries: A global provider of advanced drilling technology with a market cap of $1.1 billion, expected to see 48.6% earnings growth in 2026 [20][21] - Transocean: A global offshore drilling contractor with a market cap of $6.9 billion, expected to see 400% earnings growth in 2026 [23][25]