National Oilwell Varco Is a Strong Buy

National Oilwell Varco (NOV) announced first quarter ended March 31, 2016 total revenue of $2.2 billion, down 54 percent year-over-year from $4.8 billion during the same period last year and down 19 percent sequentially from $2.7 billion in the fourth quarter of 2015.

National Oilwell Varco declared first quarter of 2016 total adjusted EBITDA of $127 million or $0.32 of loss per diluted share, down 86 percent year-over-year from $882 million of adjusted EBITDA or $0.76 per diluted share in the first quarter of 2015 and down 61 percent sequentially from $324 million of adjusted EBITDA or $4.06 of net loss per diluted share in the fourth quarter of 2015.

The key energy mining equipment manufacturing company reported continued sequential and year-over-year declines in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment coupled with the rising exploration expenditures, eating into the company’s key margins.

Diversification is good news

National Oilwell Varco reported well-distributed top line growth across each of its growth segments with Rig Systems, Wellbore Technologies, Completion & Production Solutions and Rig Aftermarket delivering 37%, 25%, 22% and 16% or revenue contributions respectively.

National Oilwell Varco is expected to support key wells all through their lifecycle with Wellbore Technologies drilling the wells, Completion & Production Solutions completing and delivering wells, Rig Systems building rigs, and Rig Aftermarket maintaining rigs.

Further, National Oilwell Varco has superior market leadership all through its strategic operations, and it’s believed to be a reliable business partner in a greater-cost and greater-risk world having an entrepreneurial culture, impressive reinvestment opportunities, robust generation of free cash flows, and viable competitive benefit.
Going Forward, National Oilwell Varco seems hugely focused on delivering exceptional operational excellence with a key focus on minimizing costs and achieving efficiency benefits.

The energy drilling equipment manufacturer is gaining attractive top line growth from its extremely well-diversified operations, which is further being supported by strategic resizing of the company’s overall business to satisfy the gradually expanding market demands. Certain restructuring steps include 32% reductions on nearly $6.7 billion of year-over-year revenue contraction, about 25% lowering of headcount, planned closures of 130 non-performing facilities, and sustaining 28% of year-over-year SG&A expenditures.

Improving its efficiency  

National Oilwell Varco is increasingly exploring both conventional and unconventional sources of added production through notable investment and drilling activities concentrated on conventional resources along with shale and DW driving superior benefits. Importantly, National Oilwell Varco has greatly improved its overall shale economics by uniquely lowering the assumed well costs, expanding pad deployment, reducing drilling days per well, expanding lateral length, increasing year-over-year total measured depth, growing Frac Stages for optimizing production while lowering the number of Frac Days per Well and minimizing D&C Cost per Foot.

National Oilwell Varco recently signed a definitive contract to strategically acquire Trican Well Service Ltd. (TCW) Company’s completion tools business which manufactures and sells a wide variety of patented and advanced downhole tools for multi-zone completions and multi-stage fracturing in North America as well as other key global markets.

The energy mining equipment major has lately developed and introduced the Auto Tally and Trac Tag system, which jointly would facilitate the reading of tags while the drillstring parts move across the rig floor. Also, the strategic incorporation of the advanced system into the superior rig control mechanism would provide key drilling information and total drilling hours to the core component’s serial number.

National Oilwell Varco’s strategic partnership with other key OEMs in the industry is believed to further expand the former’s already strong production technology portfolio while supporting it in developing and delivering advanced drilling and Frac technologies to continue to deliver sustainable long-term company growth while offering attractive shareholder returns.


Overall, the investors are advised to “Hold” their position in National Oilwell Varco, Inc. considering the company’s healthy long-term growth prospects with the slowly but steadily improving global commodity demand and pricing environment. A currently weaker company financial position with significant total debt of $3.38 billion against a weaker total cash position of $1.76 billion only, is restricting the company from continuing with its daily operations profitably. The profit margin of -9.88% signifies no profit but loss. However, National Oilwell Varco has impressive growth prospects with superior PEG ratio of 19.76, indicating healthy company growth.
Published on Jul 12, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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