CAM Cameron International Corp.

The growth in global energy demand will continue to boost drilling activity, with the employment of technology to find and recover oil/gas resources. As such, opportunities for a global large-cap oilfield services company like National Oilwell Varco (NOV) will also improve, as it captures the economic benefit of this trend. Supported by strong consistency in its earnings/cash flows, attractive fundamentals and a positive outlook, we remain optimistic about the firm’s near-term prospects.

National Oilwell Varco, which ranks ahead of Cameron International Corp. (CAM) as the biggest U.S. maker of oilfield equipment, currently retains a Zacks #2 Rank, which translates into a short-term 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 October, National Oilwell Varco reported better-than-expected third quarter results, helped by robust activity levels, as well as good project execution skills and manufacturing efficiency.

Earnings per share (excluding transaction charges) came in at $1.26, comfortably above the Zacks Consensus Estimate of $1.17 and the year-ago adjusted profit of 97 cents. Quarterly revenue rose 24.2% year-over-year – from $3,011.0 million to $3,740.0 million – and was 2.4% above our projection.

National Oilwell Varco’s strong backlog, which now stands at more than $10 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.

Last year’s 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.

Last but not the least, National Oilwell Varco has a strong balance sheet with long-term debt of just $510 million and a growing pile of cash balance ($3.9 billion at the end of the third quarter). Moreover, since it commenced paying dividends in 2009, management has increased the payout twice. This indicates National Oilwell Varco's healthy financial position.

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.

 
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