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National Oilwell Varco (NOV) Down 15.3% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for National Oilwell Varco (NOV). Shares have lost about 15.3% in that time frame, underperforming the S&P 500.

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

National Oilwell Varco Posts Wider Q1 Loss

National Oilwell Varco reported loss of 20 cents per share in first-quarter 2019, wider than the Zacks Consensus Estimate of 9 cents loss and the year-ago loss of 18 cents. Weaker-than-expected contribution from the all segments led to this underperformance.

Seasonal demand slowdown in international markets and pricing pressure in North America meant that adjusted EBITDA from the energy equipment maker’s Wellbore Technologies unit totaled $117 million, below the Zacks Consensus Estimate of $129 million.

Further, adjusted EBITDA from the Completion & Production Solutions segment came in at $28 million, far from the Zacks Consensus Estimate of $76 million. The miss was on account deferred equipment deliveries.

National Oilwell Varco’s Rig Technologies segment’s adjusted EBITDA of $56 million also came below the Zacks Consensus Estimate of $66 million due to weakness in offshore projects, fewer capital equipment supplies and seasonally lower service and repair work.  

Total revenues of $1.9 billion missed the Zacks Consensus Estimate of $2 billion but rose 8.1% from the year-ago period.

Segmental Performance

Rig Technologies: Revenues came in at $603 million compared with $483 million in the year-ago quarter, reflecting an increase of 24.8%. The unit’s adjusted EBITDA was $56 million, 24.4% higher than $45 million recorded in the year-ago quarter, driven by strong aftermarket revenues.

Wellbore Technologies: The segment’s revenues rose 13.5% year over year to $807 million. The unit’s adjusted EBITDA of $117 million also improved from last year’s $103 million, aided by rebounding commodity prices and activities, together with strong drill pipe sales.

Completion & Production Solutions: Revenues at the segment were $581 million, down 13.3% from $670 million in the year-ago quarter. The unit recorded adjusted EBITDA of $28 million, significantly lower than the year-ago figure of $73 million. While certain projects were pulled forward to the previous quarter, segment results were also impacted by tepid order intake and postponement of deliveries by clients led to the downside.

Backlog

Capital equipment order backlog for Rig Technologies was $3.1 billion as of Mar 31, 2019, including $1271million worth of new orders.

Meanwhile, the Completion & Production Solutions segment’s backlog for capital equipment orders totaled $1 billion at the end of the first quarter. The figure included $470 million of new orders.

Balance Sheet

As of Mar 31, 2019, the company had cash and cash equivalents of $1.3 billion and long-term debt of $2.5 billion. The debt-to-capitalization ratio was 15.2%.

What Lies Ahead

National Oilwell management said that the quarter’s underwhelming performance could be attributed to the twin factors of the tightness in the upstream companies' investment budget due to low year-end crude prices and decline in offshore sales following a bumper fourth quarter that saw accelerated deliveries. Worse, the quantum of new capital equipment order continues to remain weak. However, the company sees improved customer confidence and order acceleration for the remainder of 2019 on oil price rebound.

In response to the changing market dynamics, National Oilwell Varco is looking to continue its disciplined approach to capital spending and improve efficiency.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -38.44% due to these changes.

VGM Scores

Currently, National Oilwell Varco has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. 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 F. 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. It's no surprise National Oilwell Varco has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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