On Mar 12, Zacks Investment Research downgraded oilfield
National Oilwell Varco Inc.
) to a Zacks Rank #5 (Strong Sell).
With markets remaining competitive and pricing likely to be soft,
the company's margins are expected to suffer in the next few
quarters. The recent weakness in the North American onshore
drilling environment has also been a negative.
Why the Downgrade?
With new competitors entering the market and shrinkage of capital
expenditure spending by the drilling contractors, NOV - which
ranks ahead of
Cameron International Corp.
) as the biggest U.S. maker of oilfield equipment - has seen its
new equipment package pricing fall around 10% below the levels
achieved during the peak of 2007-2008.
In particular, NOV's margins have been hit hard by the ongoing
North American drilling slump. We expect the situation -
characterized by tepid demand and weak pricing - to normalize
only sometime in late 2013.
Additionally, the company's widespread international operations
expose NOV to certain risks that include embargoes and/or
expropriation of assets, exchange rate risks, terrorism and
political/civil sentiment, etc.
As a result of these bearish factors, the tendency for a downward
estimate revision has been more obvious in recent times. In fact,
the Zacks Consensus Estimate for the first quarter has moved down
by 14 cents (or 9%) to $1.39 per share over the last 60 days. The
Zacks Consensus Estimate for the full year is $6.13, down 39
cents (or 6%) in the same timeframe
Stocks that Warrant a Look
While we expect NOV to perform below its peers and industry
levels in the coming months and see little reason for investors
to own the stock, one can look at
Range Resources Corp.
EPL Oil & Gas Inc.
) as good buying opportunities. These domestic energy explorers -
sporting a Zacks Rank #1 (Strong Buy) - have solid secular growth
stories with potential to rise significantly from current
CAMERON INTL (CAM): Free Stock Analysis
EPL OIL&GAS INC (EPL): Free Stock Analysis
NATL OILWELL VR (NOV): Free Stock Analysis
RANGE RESOURCES (RRC): Free Stock Analysis
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