National Oilwell Varco Case Study

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National Oilwell Varco: Buy the Drop
Oil and gas equipment services provider National Oilwell Varco (NOV) has declined to its 52-week lows after losing half of its value on the stock market this year. Now, while it is a given that companies related to the oil patch will see weakness in their stock price, I think that the market has been too harsh on National Oilwell. This is because despite the end-market challenges, the company has managed to beat bottom-line estimates in each of the last four quarters.
A weak rig count has weighed on its results
National Oilwell’s top line has been under pressure due to a declining rig count in the U.S. and abroad. According to data from Baker Hughes (BHI), the U.S. drilling rig count has fallen 114 units
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In fact, the rig system accounts for nearly 45% of its total revenue, as shown in the chart below. Therefore, it is not surprising why the company reported weak financial numbers for the third quarter, with its revenue declining almost 41% year-over-year. Source: National Oilwell Varco
However, there are a number of positives about National Oilwell that investors should not ignore, as these positives are allowing the company to put up stronger bottom line performances than expected. Let’s take a look at the reasons why National Oilwell Varco’s massive drop this year is an opportunity that investors should consider.
Gaining more business despite the downturn
Though National Oilwell’s overall backlog has declined, it is seeing an improvement in net order additions this year, driven by new technologies. Its rig system orders improved 22% last quarter as compared to the second quarter of 2015, and approximately 56% as compared to the first quarter of 2015.
The remarkable part is that this improvement in its net orders is despite the significant decline in the drilling rig count, as discussed earlier. National Oilwell’s rig system segment has a total order backlog of $8.02

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