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National Oilwell Varco Inc. (NOV) - Stock Analysis
Posted by: David Kerr (IP Logged)
Date: August 27, 2013 02:19PM
National Oilwell Varco Inc. (NOV) provides equipment and components used in oil and gas drilling operations and production. National Oilwell Varco is a worldwide leader in providing major mechanical components for land and offshore drilling rigs. The company currently has about 92% of its rig backlog dedicated to international customers. Not only do they provide the mechanical components for the drilling rigs, but they also offer complete land drilling and well servicing rigs as well. The company currently operates under three separate segments: Rig Technology, Petroleum Services & Supplies, and Distribution & Transmission.
These three segments allow the company to offer elaborate design, manufacture, and distribution for complete oil and gas well systems. The separate segments also allow the company to independently focus on offering spare parts as well as repair and maintenance services. National Oilwell Varco has estimated that more than 90% of the mobile offshore rig fleet, as well as the large majority of the world’s larger rigs on land that have been manufactured in the past 20 years are using various components produced by NOV.
During 2013 second quarter earnings reports, National Oilwell Varco announced an all-time high for capital equipment orders backlog for the company’s Rig Technology segment. This record level of backlog, $13.95 billion, was up 8% from the end of the first quarter in 2013, and up three times that amount from the end of the second quarter of 2012. This reflects a continuously rising high demand for oilfield equipment from the company.
Also during the second quarter earnings reports, chairman and CEO of National Oilwell Varco, Pete Miller, stated, "In addition to our solid operating results, we are also proud to have doubled our regular dividend in the second quarter, further demonstrating our commitment to return more cash to our shareholders.” He continued to discuss his eagerness to attend to the high demand for the company’s production equipment, as well as the “continued growth from [the company’s] other international operations.”
Goldman Sachs considers National Oilwell Varco to be one of the most undervalued stocks on the market.
Higher costs have hindered operating income growth for the company, and gross profit levels have declined from last year, yet NOV’s revenue per share appears to be on a strong uptrend as shown by the chart below.
According to nine analysts covering the stock, NOV’s revenue is projected to increase from $5.6 billion in the second quarter of 2013 to $6.2 billion in the third quarter of 2014.
NOV did not start producing dividends until December of 2009 when they announced a $0.10 dividend per share. The company currently offers a $0.26 quarterly dividend, with a yield of 1.42%.
NOV has a debt/equity ratio of 0.20, which is less aggressive than 81% of its peers in terms of using debt to finance growth. Because of this, earnings should be less volatile than related companies. The company also has a return on equity of 11.66%, which is more efficient than 73% of its competitors.
Since the third quarter of 2010, earnings have risen from $0.97 per share to $1.33 per share in the second quarter of 2013. NOV has had a positive surprise on earnings 9 out of the 12 quarters mentioned. Estimated earnings for the third quarter of 2014 are $1.61 according to 12 analysts covering the stock.
Analysts and Gurus
Thomson Reuters currently has the stock rated at “Neutral” with a mean 12-month price target of $83.20 according to 26 analysts as of Aug. 26, 2013.
Standard & Poor’s gives the company 4 stars with a 12-month target price of $79.00 as of August 24, 2013.
MarketEdge currently rates NOV as a “Long” as of Aug. 23, 2013, and SmartConsensus suggests a “Buy” rating as of Aug. 26, 2013.
Warren Buffett first purchased 2,841,200 shares of NOV during the second quarter of 2012 at an average price of $70.56 per share, and has added to his position the four consecutive quarters thereafter. The guru currently owns 8,880,000 shares of the company with his most recent addition in the second quarter of 2013 adding 18.65% of his stake for an average price of $68.35.
What I Like to Look For
Market Cap: $31.4 Billion
P/E Ratio: 13.42
Forward P/E Ratio: 11.72
P/B Ratio: 1.49
Debt/Equity Ratio: .20
PEG Ratio: 1.31
Free Cash Flow: Average growth of 190.3% over the last 12 months.
Revenue: Average growth of 15.6% over the last 10 years, and 27.9% over the last 12 months.
EBITDA: Average growth of 28.4% over the last 10 years, and 0.4% over the last 12 months.
Earnings: Average growth of 10.20% over the last 5 years, compared to 0.30% for the industry, and 5.70% for the S&P 500.
Peter Lynch Chart
Disclosure: No current position held at the time of writing.
Disclaimer: The opinions and ideas in this article are for informational and educational purposes only. They are not a recommendation to buy or sell any stock at any given time. As always, it is imperative for each individual investor to do their own due diligence and perform their own research on any and all stocks before making an investment decision.
Stocks Discussed: NOV,