We are maintaining our long-term Neutral recommendation on
National Oilwell Varco
), reflecting its strong drilling equipment base, healthy balance
sheet and an impressive business model. These positives are
partially clouded by the gas/oil price instability, costs inflation
and geo-political risks.
Houston, Texas based National Oilwell Varco is a world leader in
the design, manufacture, and sale of comprehensive systems,
components, products and equipment used in oil and gas drilling and
During the first three months of 2012, the company performed
impressively and posted earnings per share (excluding transaction
costs) of $1.44, comfortably beating the Zacks Consensus Estimate
of $1.39 and above the year-ago adjusted profit of $1.00 per share.
The result was supported by robust activity levels, as well as good
project execution skills and manufacturing efficiency.
During the quarter, National Oilwell Varco also received total
bookings of $1.91 billion, 15% higher than the previous quarter. We
remain confident that the company will be able to supply
technologically advanced production equipment on schedule.
Additionally, with the acquisition of Denmark-based firm NKT
Flexibles, National Oilwell Varco expanded its Floating Production,
Storage and Offloading vessels (FPSOs) product line. The company
will also reap benefits from NKT Flexibles' advanced technical
design capability and skilled manpower. The collaboration will
place National Oilwell Varco in a commanding position in the
offshore production market, as well as expand its global foothold
by venturing into the developing sectors of the energy
However, we remain somewhat cautious about the company's
performance in the coming months as oilfield service stocks are
extremely unpredictable and the correlation of their movement with
underlying business fundamentals is sometimes difficult to
establish. As such, the shares of National Oilwell Varco may not be
suitable for investors who are not comfortable with day-to-day
National Oilwell Varco conducts operations in many countries,
with a major portion of its total revenue coming from international
markets. As such, the company is exposed to risks associated with
doing business abroad. Such risks include embargoes and/or
expropriation of assets, exchange rate risks, terrorism and
Hence, we do not see any obvious catalyst in the company's
business to significantly push the stock price higher. National
Oilwell, which operates with other players such as
Cameron International Corp.
Weatherford International Ltd.
), currently retains a Zacks #3 Rank (Hold rating) for the short
CAMERON INTL (CAM): Free Stock Analysis Report
NATL OILWELL VR (NOV): Free Stock Analysis
WEATHERFORD INT (WFT): Free Stock Analysis
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