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National Oilwell Varco (NOV) Down 7.2% 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 7.2% 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 Posts Stronger Y/Y Q4 Results

National Oilwell reported earnings of 3 cents in fourth-quarter 2018, missing the Zacks Consensus Estimate of 8 cents per share. Weaker-than-expected contribution from Wellbore Technologies unit led to this underperformance. Operating profit from the energy equipment maker’s Wellbore Technologies unit totaled $41 million, lagging the Zacks Consensus Estimate of $46.36 million.

However, National Oilwell’s bottom line witnessed a turnaround from the year-ago loss of 4 cents on the back of improved results across all the segments.

Total revenues of $2,398 million topped the Zacks Consensus Estimate of $2,191 million. The top line also rose 21.8% from the year-ago period.

Segmental Performance

Rig Technologies: Revenues came in at $804 million compared with $614 million in the year-ago quarter, reflecting an increase of 31%. Solid execution of projects and higher aftermarket sales led to the improved performance. Consequently, the unit’s adjusted EBITDA came in at $102 million, 45.7% higher than $70 million recorded in the year-ago quarter.

Wellbore Technologies: The segment’s revenues rose 23.6% year over year to $884 million. Strong demand owing to greater market adoption of the unit’s superior technology services (domestically as well as internationally) drove the top line. The unit’s adjusted EBITDA of $155 million also increased from the year-ago figure of $107 million, aided by higher volumes and improved product mix.   

Completion & Production Solutions: Revenues at the segment were $788 million, up 14.2% from $690 million in the year-ago quarter. Robust capital equipment demand for land production and steady progress with its projects drove the upside. As such, the unit recorded adjusted EBITDA of $112 million, up 51.4% from the year-ago figure of $74 million.

Backlog

Capital equipment order backlog was $3.1 billion as of Dec 31, 2018, including $119 million worth of new orders.

Meanwhile, the Completion & Production Solutions segment’s backlog for capital equipment orders totaled $894 million at the end of the fourth quarter. The figure included $470 million of new orders.

Balance Sheet

As of Dec 31, 2018, the company had cash and cash equivalents of $1.4 billion, and long-term debt of $2.7 billion. The debt-to-capitalization ratio was 16.3%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -146.24% due to these changes.

VGM Scores

Currently, National Oilwell Varco has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, National Oilwell Varco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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