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 (
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. (
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
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
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
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
CAMERON INTL (
): Free Stock Analysis Report
NATL OILWELL VR (
): Free Stock Analysis Report
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