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Things You Must Consider Before NOV Reports Q4 Earnings

NOV Inc. NOV is set to release fourth-quarter 2020 results after the closing bell on Thursday, Feb 4. The current Zacks Consensus Estimate for the to-be-reported quarter is a loss of 12 cents per share on revenues of $1.3 billion.

Let’s delve into the factors that might have influenced the oilfield services company’s performance in the December quarter. But it’s worth taking a look at NOV’s previous-quarter result first.

Highlights of Q3 Earnings & Surprise History

In the last-reported quarter, the Houston, TX-based provider of equipment and technology to the oil and gas exploration and production firms beat the consensus mark primarily due to better-than-expected revenues from the Completion & Production Solutions segment. NOV reported adjusted loss per share of one cent, narrower than the Zacks Consensus Estimate of a loss of 9 cents. Further, total revenues of $1.38 billion outperformed the Zacks Consensus Estimate by 0.6%.

As far as earnings surprises are concerned, NOV beat the Zacks Consensus Estimate in three of the last four quarters and missed in the other, delivering an earnings surprise of 36.63%, on average. This is depicted in the graph below:

NOV Inc. Price and EPS Surprise

NOV Inc. price-eps-surprise | NOV Inc. Quote

 

Trend in Estimate Revision

The Zacks Consensus Estimate for the third-quarter bottom line remained the same in the last seven days. However, the estimated figure indicates 192.3% deterioration year over year. The Zacks Consensus Estimate for revenues, meanwhile, suggests 41.8% decline from the year-ago period.

Factors to Consider

Per a recent company update for the fourth quarter, softness in international markets and lower demand for capital equipment offset the ramp-up in North American activity levels that led to higher revenues in the United States for its shorter-cycle businesses. This, in turn, hurt the quarterly performance of its three units, namely Rig Technologies, Wellbore Technologies and Completion & Production Solutions, which fell below the company’s expectations. Consequently, the Zacks Consensus Estimate for the fourth-quarter adjusted EBITDA for Rig Technologies, Wellbore Technologies and Completion & Production Solutions are pegged at $30.86 million, $24.25 million and $42.89 million, respectively, indicating a decrease of 72.4%, 83% and 55.3% year over year.

The renewed spike in COVID-19 cases forced customers to delay orders, inducing a slowdown in bookings during the latter half of the final quarter. However, NOV managed to attain a sequential uptick of 27% in orders for its Completion & Production Solutions segment and a 105% surge in book-to-bill for its Rig Technologies segment. In particular, the Zacks Consensus Estimate for new orders booked by the unit for the to-be-reported quarter stands at $202 million, implying a 19.5% increase from $169 million in the July-September period.

NOV has also done a fairly admirable job at reducing costs. In the previous quarter, the company’s gross margin was up by 1% sequentially to 10%, a trend that is most likely to have continued in the fourth quarter because of progress in cost-reduction initiatives. Apart from significant capital cuts, the company should realize sizeable savings from headcount reduction and operating cost control. In fact, NOV went past its $700 million annualized cost savings target in the third quarter itself. All this is expected to have pushed the company’s fourth-quarter earnings and cash flows higher.

What Does Our Model Say?

The proven Zacks model does not conclusively predict an earnings beat for NOV this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, for this company is -14.06%.

Zacks Rank: NOV has a Zacks Rank #3.

Stocks to Consider

While an earnings beat looks uncertain for NOV, here are some firms from the energy  space that you may want to consider on the basis of our model:

NuStar Energy L.P. NS has an Earnings ESP of +21.21% and a Zacks Rank #2. The firm is scheduled to release earnings on Feb 4.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Exxon Mobil Corporation XOM has an Earnings ESP of +107.40% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Feb 2.

Patterson-UTI Energy, Inc. PTEN has an Earnings ESP of +4.99% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Feb 4.

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