Shares of National Oilwell Varco (NYSE: NOV) lost 12.3% of their value in November, according to data provided by S&P Global Market Intelligence. That's after a sell-off in the oil market dimmed the optimism from the oil-field equipment company's recently released outlook and capital plans.
When National Oilwell Varco held its analyst day last month, two things stood out. First, the company unveiled a bullish outlook for the next three years. It expects revenue to rise 9% to 15% in 2019, driven by a more than 10% increase in capital spending by oil companies and its view that oil will be between $65 to $70 a barrel. Meanwhile, it anticipates revenue to grow at an 11% to 16% compound annual growth rate through 2021, given that it predicts oil to be in the $70s over that time frame.
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That growing revenue stream will enable the company to generate enough cash to pay its current dividend, achieve its leverage target, and make acquisitions with plenty of money left over. That led National Oilwell Varco to institute a $500 million stock buyback program, which is enough money to retire about 4% of its outstanding shares.
However, crude prices crumbled last month, falling 22% to around $50 a barrel, as market fears of tightening supplies quickly gave way to concerns that there is now too much oil on the market. That's after the U.S. granted waivers to most buyers of Iranian oil, which significantly diluted the impact of the sanctions it reimposed last month. That slump in oil prices could impact the budgets of oil companies, which would cut demand for the equipment National Oilwell Varco sells, making it harder for the company to achieve its rosy outlook.
While National Oilwell Varco expects strong revenue and profit growth in 2019 and beyond, the recent slump in the oil market came right as companies were setting their budgets for the coming year. Because of that, capital spending might not increase as much as the company expects, which could cause its results to fall short of expectations. That could weigh on the stock until oil prices and customer budgets start heading higher.
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