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National Oilwell Varco (NOV) Down 19.8% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for National Oilwell Varco (NOV). Shares have lost about 19.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is National Oilwell Varco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

National Oilwell Varco Posts Narrower Q2 Loss

National Oilwell Varco reported an adjusted loss of 4 cents per share in second-quarter 2019, narrower than the Zacks Consensus Estimate of 7 cents loss. The adjusted figures exclude a goodwill write-down of $5.4 billion. Strong contribution from the Rig Technologies and the Wellbore Technologies segments led to this outperformance.

However, the bottom line fell from the comparable 2018 period profit of 6 cents as North American drillers scale back their production growth plans, leaving less work for the likes of National Oilwell Varco.

National Oilwell Varco Recovery in the international business and cost reductions meant that adjusted EBITDA from the energy equipment maker’s Wellbore Technologies unit totaled $134 million, above the Zacks Consensus Estimate of $129 million.

National Oilwell Varco’s Rig Technologies segment’s adjusted EBITDA of $74 million also came above the Zacks Consensus Estimate of $68 million due to higher contribution from offshore projects and strong aftermarket sales.

Further, adjusted EBITDA from the Completion & Production Solutions segment came in at $52 million, in line with the Zacks Consensus Estimate. The unit benefited from higher offshore and international demand for equipment associated with completion and production.

Total revenues of $2.1 billion beat the Zacks Consensus Estimate by 2.4% and rose 1.2% from the year-ago period.

Segmental Performance

Rig Technologies: Revenues came in at $671 million compared with $651 million in the year-ago quarter, reflecting an increase of 3.1% due to increased offshore share and higher sales from aftermarket operations. However, the unit’s adjusted EBITDA was $74 million, 11.9% lower than $84 million recorded in the year-ago quarter, pulled down by decreasing land capital equipment sales.

Wellbore Technologies: The segment’s revenues rose 7.2% year over year to $850 million. Meanwhile, the unit’s adjusted EBITDA of $134 million improved marginally from last year’s $133 million, aided by strict cost controls and improving international activity.

Completion & Production Solutions: Revenues at the segment were $663 million, down 10.2% from $738 million in the year-ago quarter. The unit recorded adjusted EBITDA of $52 million, significantly lower than the year-ago figure of $94 million as customers continue to focus on reducing spending.

Backlog

Capital equipment order backlog for Rig Technologies was $3.2 billion as of Jun 30, 2019, including $310 million worth of new orders.

Meanwhile, the Completion & Production Solutions segment’s backlog for capital equipment orders totaled $1.2 billion at the end of the second quarter. The figure included $548 million of new orders – the most for a quarter in five years.

Balance Sheet

As of Jun 30, 2019, the company had cash and cash equivalents of $1.1 billion and long-term debt of $2.5 billion. The debt-to-capitalization ratio was 22.6%.

What Lies Ahead

National Oilwell management said that the tightness in the North American upstream companies' investment budget has led to a ‘generational oilfield downturn’. While the domestic oil producers are unlikely to increase spending anytime soon, the company sees stronger business internationally, and particularly in offshore. In response to the changing market dynamics, National Oilwell Varco is looking to continue its disciplined approach to capital spending and improve efficiency.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 731.79% due to these changes.

VGM Scores

At this time, National Oilwell Varco has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise National Oilwell Varco has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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