Stock Spotlight: NATIONAL-OILWELL VARCO, INC. (NYSE:NOV)
With oil drilling & exploration companies upbeat about their future due to firm oil & natural gas price trends, one option for investors to play the energy sector is to invest in oil services & equipment companies. Within this industry, National-Oilwell Varco, Inc. (NYSE:NOV) appears to be an interesting bet based on valuations and other parameters.
Incorporated in Delaware in 1995, National Oilwell Varco, Inc. (NOV) provides equipment & components for oil & gas drilling / production activities and oilfield services. It is also proved supply chain management services for upstream oil & gas companies. NOV has global presence and operates in 900 locations across the world. 43% of its business comes from USA & Canada with the South Korea, Singapore, Norway & the UK being the other important locations.
In 2011, the company posted a revenue of $ 14.66B ($12.71B in 2009) with an operating profit of $2.94B ($2.31B in 2009). The net income was $1.99B ($1.47B in 2009). NOV operates in three verticals, namely, Rig Technology, Petroleum Services and Supplies & Distribution & Transmission. The rig technology segment contributed more than 52% of the revenue and around 70% of the operating profit in 2011.
With the number of active rigs in US alone having risen from 1089 to around 1879 between 2009 and November 2012 (source: www.eia.gov), robustness drilling activities is likely to support the growth story. The Petroleum Services & Supplies segment contributed approximately 38% & 36% of revenue and operating profit respectively in 2011.
In 2012, it strengthened its distribution & transmission vertical through acquisition of Wilson distribution business segment from Schlumberger (NYSE:SLB) & CE Franklin Ltd (Nasdaq:CFK). Continuing with the growth trend, in the 9 months ending 30th September 2012 alone, it reported revenue of $14.36B with a net income of $1.82B. The diluted EPS for the nine months was $4.28. As on 30th September 2012, it had a healthy $11.66B backlog of capital equipment orders for its rig technology segment which augurs well for it’s near term prospects.
Compared to its peers, NOV is reasonably valued with low P/E (2011) of 12.94 and a significantly higher net profit margin of 13.54%. The debt-equity ratio is a 2.89 which is significantly lower than the other companies operating in the industry.
Source: Google finance – Data for 2011
Though the TTM month data indicates slightly lower margins (12.88%) the revenue for the period is a strong $18.62B, a growth of 42.2% (YOY). The net income for TTM is $2.4B which suggests that a solid performance for 2012 is in the offing. Forward P/E is around 11 & PEG ratio is an attractive 0.78.
The mean estimate of revenue & EPS for 2013 is $22.73B & $6.48 respectively with a majority of analysts recommending the stock with an outperform or a buy rating. Over the past three years, the company has consistently beaten the street with better than expected performance (source: Thompson Reuters). The institutional investors hold around 90% stake in NOV and it has a decent dividend paying track record.
Though the stock appears to be a compelling buy based on fundamentals, at present, it is not technically very strong. The 50DMA for the stock is around $69 & it is trading around its 200DMA of $73.89. The 52W high of the stock is $89.95. The earnings for 2012 will be released on 1st February which is likely to be the next major trigger for the stock in the short term.