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

The Zacks Oil and Gas - Drilling industry includes companies that provide rigs, equipment and crews to explore and develop oil and gas reserves worldwide. These services are essential but expensive, and demand depends more on contracting activity and available rigs than on oil prices alone. Drilling stocks are also highly volatile, particularly offshore names whose share prices tend to move closely with crude prices. Right now, the outlook is mixed. Oversupply in the oil market and strict capital discipline among operators are limiting new drilling activity. The business remains capital-intensive, with large upfront investments and uneven cash flows. That said, rising natural gas demand and improving international activity — especially in the Middle East and Latin America — could offer some support over time. For investors willing to ride the volatility, Noble Corporation NE, Transocean Ltd. RIG and Nabors Industries NBR are three stocks worth watching.

Industry Overview

The Zacks Oil and Gas - Drilling industry consists of companies that provide rigs (or specialized vehicles) on a contractual basis to explore and develop oil and gas. These operators offer drilling rigs (both land-based/onshore and offshore), equipment, services and workforce to exploration and production companies worldwide. Drilling for hydrocarbons is costly and technically difficult, and its future primarily depends on contracting activity and the total number of available rigs at a given time rather than the price of oil or gas. Within the industry, it's interesting to note that the volatility associated with offshore drilling companies is much higher than that of their onshore counterparts, and their share prices are more correlated to the price of oil. Overall, oil and natural gas drilling stocks are among the most volatile in the entire equity market.

4 Trends Defining the Oil and Gas - Drilling Industry's Future

Oversupplied Oil Market and Capital Discipline: Global oil supply has at times exceeded demand, keeping crude prices under pressure. Even brief price rebounds have not yet translated into a sustained pickup in drilling. Operators remain disciplined, prioritizing shareholder returns over production growth. This mindset limits new rig demand. If oil prices weaken further, activity could decline modestly, particularly in oil-weighted basins. In that scenario, pricing competition may intensify and service margins could face renewed pressure.

Structural Growth in Natural Gas Demand: Natural gas demand is building real momentum. LNG exports are expanding, AI-driven power consumption is rising and several regions are pushing energy security strategies. This creates a steady need for upstream investment. Gas-focused rig activity has already shown signs of improvement, and international gas projects are gaining traction. If this trend continues, drilling demand could strengthen over the next few years. In a tightening gas market, service pricing may firm up as operators compete for high-spec rigs and completion equipment.

High Capital Intensity and Cash Flow Volatility: Drilling remains a capital-heavy business. Newbuild programs, equipment upgrades and technology investments require large upfront spending before cash flow materializes. Seasonal disruptions, working capital swings and project timing can also create uneven free cash flow. In softer markets, companies may reduce capital budgets to preserve liquidity, which can limit near-term growth. If activity slows unexpectedly, returns on recent investments could take longer to realize, weighing on overall industry profitability.

International Expansion and Long-Term Contracts: While North America remains cautious, international markets are showing resilience. Activity in the Middle East and parts of Latin America is gradually improving, supported by national production targets. Many of these projects run on multiyear contracts, offering better revenue visibility and lower volatility. As global operators pursue capacity expansion, drilling demand outside the United States could provide a more stable growth platform. International exposure may help balance cyclical swings in domestic shale markets.

Zacks Industry Rank Indicates Bearish Outlook

The Zacks Oil and Gas - Drilling industry is an eight-stock group within the broader Zacks Oil - Energy sector. It currently carries a Zacks Industry Rank #158, which places it in the bottom 35% of 243 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates challenging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group’s earnings growth potential. While the industry’s earnings estimates for 2026 have gone down 74.4% in the past year, the same for 2027 have fallen 54.6% over the same timeframe.

Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Outperforms Sector & S&P 500

The Zacks Oil and Gas - Drilling industry has fared better than the broader Zacks Oil – Energy sector as well as the Zacks S&P 500 composite over the past year.

The industry has gone up 76.1% over this period compared with the broader sector’s increase of 34.5% and the S&P 500’s gain of 20.5%.

One-Year Price Performance

Industry's Current Valuation

Since oil and gas drilling companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) ratio. This is because the valuation metric takes into account not only equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.

On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 13.70X, lower than the S&P 500’s 17.90X. It is, however, above the sector’s trailing 12-month EV/EBITDA of 6.56X.

Over the past five years, the industry has traded as high as 24.81X, as low as 4.16X, with a median of 14.12X, as the chart below shows.

Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio (Past Five Years)

 

3 Oil and Gas - Drilling Stocks to Watch

Noble Corporation: It is a leading offshore drilling contractor with a fleet of 41 rigs, including 28 floaters and 13 jackups. Noble focuses mainly on ultra-deepwater and high-specification jackup projects across global markets. Four of its drillships are contracted to ExxonMobil in Guyana on market-linked terms through at least August 2028. While several jackups operate in the currently softer North Sea market, Noble continues to maintain a modern and technically advanced fleet built on decades of operating experience.

Founded in 1921, Noble emphasizes safety, efficiency and long-term customer partnerships. The Zacks Rank #2 (Buy) company holds a backlog of about $7.5 billion and recently secured $1.3 billion in new contracts. For 2026, it expects solid revenue and EBITDA performance, supported by disciplined capital spending.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Noble has a market capitalization of $7.3 billion. The Zacks Consensus Estimate for 2026 earnings for the firm indicates 73.1% growth. NE stock has surged 97.4% in a year.

Price and Consensus: NE

Nabors Industries: It is a global provider of advanced drilling technology and services, operating in more than 20 countries. Nabors combines drilling operations, rig equipment and digital solutions to improve performance, safety and efficiency. Its vertically integrated model allows it to design automated rig technologies and deliver specialized services directly through its fleet. Nabors is a leading provider of high-specification rigs in the United States and deploys fit-for-purpose rigs across key international markets.

The Zacks #2 Ranked company is also focused on innovation, sustainability and reducing debt. Nabors’ recent moves include acquiring Parker Wellbore, divesting Quail Tools and refinancing debt to extend maturities. These steps strengthen its balance sheet while supporting long-term growth and energy transition goals.

Nabors has a market capitalization of $1.1 billion. The Zacks Consensus Estimate for 2026 earnings for the firm indicates 48.6% growth. NE stock has gained 106.6% in a year.

Price and Consensus: NBR

Transocean: This Zacks Rank #3 (Hold) company is a global offshore drilling contractor known for its technically advanced fleet and deep expertise in complex environments. The company operates one of the highest-specification floating drilling fleets in the world, including ultra-deepwater and harsh-environment units designed to handle high-pressure, high-temperature reservoirs. With a strong presence in demanding offshore markets, Transocean continues to be a preferred partner for operators seeking safe, reliable and efficient well-construction capabilities.

The company owns or has stakes in 27 mobile offshore drilling units — 20 ultra-deepwater floaters and seven harsh-environment floaters — supported by a highly skilled operating team. Transocean benefits from rising offshore activity, a sizeable backlog and a focused approach to cost efficiency and deleveraging. These strengths position it well for long-term value creation as global oil and gas demand sustains offshore investment. 

The firm has a market capitalization of $6.9 billion. The Zacks Consensus Estimate for 2026 earnings for Transocean indicates 400% growth. RIG stock has surged 128.9% in a year.

Price and Consensus: RIG

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Noble Corporation PLC (NE): Free Stock Analysis Report
 
Transocean Ltd. (RIG): Free Stock Analysis Report
 
Nabors Industries Ltd. (NBR): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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