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National Oilwell (NOV) to Post Q4 Earnings: What's in Store?

Zacks Equity Research

National Oilwell Varco, Inc. NOV is scheduled to release fourth-quarter 2018 results on Feb 6, after the closing bell.

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

In the last reported quarter, the company reported weaker-than-expected results amid lesser-than-expected contribution from Wellbore Technologies, and Completion & Production Solutions segments. Coming to earnings surprise history, National Oilwell has managed to beat estimates in just one out of the trailing four quarters, delivering average negative surprise of 87.5%.

National Oilwell Varco, Inc. Price and EPS Surprise

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

Let’s see which way are top and bottom-line estimates headed this time.

The Zacks Consensus Estimate for fourth-quarter earnings stands at 8 cents, having declined by a penny over the past 30 days. Nonetheless, it reflects a turnaround from the year-ago loss of 4 cents. The Zacks Consensus Estimate for revenues is pegged at $2,191 million compared with $1,969 million in the prior-year quarter.

Let’s take a look at the factors that are likely to shape National Oilwell’s fourth-quarter earnings.

Factors at Play

During fourth-quarter 2018, the West Texas Intermediate (WTI) crude plunged from a multi-year high of $76.40 a barrel in early October to below $45 in late December, per the U.S. Energy Information Administration. The overall decline in the commodity price will likely be unfavorable for Core Laboratories, as oilfield equipment service providers’ performance are positively correlated with crude price.

The declining oil prices have certainly weighed on the backlog of the company. The backlog of National Oilwell’s Completion and Production unit is estimated at $805 million vis a vis $1,070 million in the prior-year quarter. This reflects a sequential fall of 8.5%. As it is, operating profit from Completion & Production Solutions failed to meet the Zacks Consensus Estimate in the last reported quarter due to tepid pressure pumping demand. The trend is likely to continue amid weak oil prices and high labor costs.

Weaker contribution from offshore activities further aggravates our concerns amid the low crude environment. Notably, the backlog for the offshore-focused Rig Technologies segment (created early last year) is pegged at $3,316 million, representing a sequential decline. New orders are estimated at $197 million versus $256 million in the last reported quarter.

While higher demand of superior technologies from the Wellbore unit may provide some relief, we expect National Oilwell to post lackluster results in the to-be-reported quarter amid weaker offshore activities and low oil prices.

Earnings Whispers

Our proven model shows that National Oilwell is unlikely to beat estimates this earnings season. 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) for this to happen. 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 -11.57%. This is because the Most Accurate Estimate of 7 cents is pegged a penny lower than the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: National Oilwell currently carries a Zacks Rank #5 (Strong Sell). We caution investors against stocks with a Zacks Rank #4 (Sell) 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 energy firms from the energy space 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 upcoming quarterly release:

CSI Compressco LP CCLP has an Earnings ESP of +12.50% and a Zacks Rank #3. The company is expected to release fourth-quarter earnings on Feb 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

TechnipFMC FTI has an Earnings ESP of +2.50% and holds a Zacks Rank #3. The company is slated to release fourth-quarter earnings on Feb 20.

Williams Companies WMB has an Earnings ESP of +10.08% and a Zacks Rank #3. The firm is slated to release fourth-quarter earnings on Feb 13.

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