National Oilwell Varco (NOV) Up 9.4% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for National Oilwell Varco (NOV). Shares have added about 9.4% in that time frame, outperforming the S&P 500.

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

National Oilwell Q1 Earnings Surpass Estimates

National Oilwell Varco, delivered adjusted earnings of 14 cents per share in first-quarter 2020, beating the Zacks Consensus Estimate of 10 cents. Moreover, the bottom line rebounded from the year-ago loss of 20 cents per share. Particularly, strong contribution from the Completion & Production Solutions segment led to this outperformance.

Total revenues of $1.88 billion underperformed the Zacks Consensus Estimate of $1.98 billion and also dipped 2.9% from the year-ago number of $1.94 billion due to weakness in the Wellbore Technologies unit.

Segmental Performance

Rig Technologies: Revenues of $557 million from this segment missed the Zacks Consensus Estimate of $664 million as well as declined from the year-ago quarter’s $603 million, thanks to a drop in capital equipment sales and waning aftermarket revenues, resulting from coronavirus-induced woes. The unit’s adjusted EBITDA of $56 million was in line with the year-earlier quarter’s figure.

Wellbore Technologies: Segmental revenues matched the Zacks Consensus Estimate but fell 14% year over year to $691 million as a result of reduced drilling operations in North America and seasonality in international markets. Moreover, the unit’s adjusted EBITDA of $103 million decreased from the prior-year’s $117 million.

Completion & Production Solutions: Revenues of $675 million were up 16% from $581 million in the year-earlier quarter as offshore and international demand remained solid. The unit recorded adjusted EBITDA of $71million, 153.6% higher than the year-ago figure of $28 million.

Backlog

Capital equipment order backlog for Rig Technologies was $2.93 billion as of Mar 31, 2020 including $146 million worth of new orders.

Meanwhile, the Completion & Production Solutions’ backlog for capital equipment orders totalled $1.19 billion at the end of the first quarter. The figure included $335 million worth of new orders.

Balance Sheet

As of Mar 31, 2020, the company had cash and cash equivalents worth $1.11 billion and a long-term debt of $2 billion. The debt-to-capitalization was 26.5%.

The Path Ahead

The domestic oil producers are unlikely to increase their spending anytime soon following the coronavirus pandemic’s adverse impact on global energy demand. In response to the market dynamics, National Oilwell Varco will likely sustain its disciplined approach to capital spending and improvement in its efficiency level.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -3530% due to these changes.

VGM Scores

At this time, National Oilwell Varco has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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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