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What's in Store for National Oilwell (NOV) in Q3 Earnings?

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National Oilwell Varco, Inc. NOV is scheduled to release third-quarter 2018 results on Oct 25, after the closing bell.

Houston, TX-based National Oilwell is a world leader in designing, manufacturing and selling of comprehensive systems, components, products, and equipment used in oil and gas drilling and production worldwide.

In the last reported quarter, the company reported better-than-expected results on stellar show across all segments. Coming to earnings surprise history, National Oilwell surpassed earnings estimates in three out of the trailing four quarters.

National Oilwell Varco, Inc. Price and EPS Surprise

National Oilwell Varco, Inc. Price and EPS Surprise | National Oilwell Varco, Inc. Quote

The Zacks Consensus Estimate for earnings stands at 12 cents per share on revenues of $2,208 million. This signals a turnaround from a loss of 8 cents per share incurred in the year-ago quarter. Notably, the Zacks Consensus Estimate for earnings remained unchanged over the past two months.

Let's see how things are shaping up for this announcement.

Factors at Play

Average West Texas Intermediate (WTI) crude prices were recorded at $70.98, $68.06 and $70.23 per barrel in the month of July, August and September 2018, respectively, per data from the U.S. Energy Information Administration (EIA). These prices were considerably higher than the year-ago respective prices of $46.63, $48.04 and $49.82.

While the crude rally will certainly fuel the company’s onshore-focused portfolio, the offshore-levered business of the firm might face challenges amid stiff competition and lower margins due to oversupply and increased costs.

As such, National Oilwell’s offshore-focused Rig Technologies segment is anticipated to report weaker results compared with the prior quarter. Late last year, the company reconstituted its offshore-focused business segments by combining Rig Systems and Rig Aftermarkets into a single unit named Rig Technologies. Importantly, the Zacks Consensus Estimate for adjusted EBITDA for the Rig Technologies unit is pegged at $75 million, lower than $84 million recorded in the second quarter of 2018.

Nonetheless, robust performance from the onshore-levered Wellbore Technologies segment is likely to buoy the company’s performance in the quarter to be reported. The Zacks Consensus Estimate for Wellbore Technologies’ third-quarter operating profit is pegged at $57 million, indicating a massive increase from break-even results recorded in the year-ago quarter. Moreover, the expected segmental profit of $57 million also reflects an improvement from the prior-year figure of $38 million.

The Zacks Consensus Estimate for the Completion & Production Solutions segment’s third-quarter operating profit is pegged at $56 million, up from $44 million in the year-ago period and $16 million generated in the last reported quarter.

Earnings Whispers

Our proven model shows that National Oilwell is unlikely to beat estimates in the to-be-reported quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat the consensus estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. That is not the case here as you will see below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -4.66%. This is because the Most Accurate Estimate stands at 11 cents, a penny below the Zacks Consensus Estimate of 12 cents.

Zacks Rank: National Oilwell currently carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, an ESP of 0.00% makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Though an earnings beat looks uncertain for National Oilwell, here are a few firms from the same industry that you may want to consider. On the basis of our model, these have the right combination of elements to post an earnings beat in the quarter to be reported.

NOW Inc. DNOW has an Earnings ESP of +3.03% and a Zacks Rank #2. The firm is expected to release third-quarter earnings on Nov 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

USA Compression Partners, L.P. USAC has an Earnings ESP of +25.00% and carries a Zacks Rank #2. The company is set to report third-quarter results on Nov 6.

Superior Drilling Products, Inc. SDPI has an Earnings ESP of +20.00% and a Zacks Rank #2. The company is anticipated to unveil third-quarter results on Nov 8.

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