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National Oilwell Slips to Strong Sell

Zacks Equity Research

On Jun 18, Zacks Investment Research downgraded global large-cap energy equipment maker, National Oilwell Varco (NOV) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

National Oilwell witnessed sharp downward estimate revisions after reporting weak first-quarter 2013 results. On Apr 26, National Oilwell reported weaker-than-expected first-quarter 2013 earnings due to lower operating margin in all its segments. Earnings per share (excluding transaction costs) of $1.29 missed the Zacks Consensus Estimate by 8 cents and the year-ago adjusted profit by 15 cents.

With regard to business units, Petroleum Services & Supplies’ operating profit decreased 19.8% from the first quarter of 2012 to $311.0 million. The negative comparison was due to lower demand for products and services in a weak North American market.

The recent weakness in North American onshore drilling has been a negative for National Oilwell, which derives a substantial portion of its revenues/earnings from the region. Moreover, in a competitive and soft pricing environment, we expect some downside for the National Oilwell stock during the next few quarters.

A combination of all these factors weighed on the earnings estimates for National Oilwell in the last 60 days. Most of the estimates were revised downward over the same time frame for the second quarter of 2013 (13 out of 15) and full-year 2013 (16 out of 17). The Zacks Consensus Estimate for the second quarter of 2013 has gone down by 8.2% to $1.34 per share while it dropped 8.16% to $5.63 per share for 2013.

Other Stocks to Consider

Not all oilfield equipment makers are performing as poorly as National Oilwell. The stocks of Natural Gas Services Group Inc. (NGS), Dril-Quip Inc. (DRQ) and Lufkin Industries Inc. (LUFK) are worth considering. All these stocks carry a Zacks Rank #2 (Buy).

Read the Full Research Report on DRQ

Read the Full Research Report on NOV

Read the Full Research Report on LUFK

Read the Full Research Report on NGS

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