National Oilwell is Now Outperform - Analyst Blog
August 10 2011 - 11:30AM
Zacks
Buoyed by strong operating results and robust activity levels
throughout North America, we have upgraded oilfield services
company National Oilwell Varco (NOV) to Outperform
from Neutral.
National Oilwell Varco, which ranks ahead of Cameron
International Corp. (CAM) as the biggest U.S. maker of
oilfield equipment, currently retains a Zacks #1 Rank, which
translates into a short-term Strong Buy rating.
The company – one of the largest manufacturers of drilling
equipment in the world – has a large installed base of rigs
worldwide that provides for a steady recurring revenue stream
through demand for maintenance, parts and other expendable
products.
Late last month, National Oilwell Varco reported
better-than-expected second quarter results, helped by robust
drilling and pressure pumping activity throughout North America, as
well as good project execution skills and manufacturing
efficiency.
Earnings per share (excluding transaction charges) came in at
$1.14, comfortably above the Zacks Consensus Estimate of $1.01 and
the year-ago adjusted profit of 97 cents. Quarterly revenue rose
19.5% year-over-year – from $2,941.0 million to $3,513.0 million –
and was 8.7% above our projection.
National Oilwell Varco’s strong backlog, which now stands at
more than $7.7 billion, not only reflects steady demand from its
customers but also offers long-term earnings and cash flow
visibility. This enables it to navigate the current uncertain
environment better than many of its peers.
Following the Gulf of Mexico oil spill, we expect the company to
benefit from the near-term requirements of better offshore safety
equipment. Stricter regulations on drilling could translate into
enhanced opportunities for equipment suppliers like National
Oilwell Varco.
The recent acquisition of Advanced Production and Loading PLC
(“APL”) will further boost National Oilwell Varco’s earnings
visibility by expanding its floating production storage and
offloading vessel (“FPSO”) product line, one of the fastest-growing
areas of the offshore market. The recent influx of offshore rig
awards adds to the positive sentiment.
As such, we believe National Oilwell Varco is favorably
positioned to continue accelerating revenue and earnings growth
over the next few quarters.
Houston, Texas based National Oilwell Varco, formerly National
Oilwell, is a world leader in the design, manufacture and sale of
comprehensive systems, components, products and equipment used in
oil and gas drilling and production worldwide.
The company reached its current form following the March 2005
merger between National Oilwell and Varco International. National
Oilwell Varco organizes its operations in three business segments:
Rig Technology, Petroleum Services & Supplies, and Distribution
Services.
CAMERON INTL (CAM): Free Stock Analysis Report
NATL OILWELL VR (NOV): Free Stock Analysis Report
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