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Factors Guiding National Oilwell's (NOV) Fate in Q1 Earnings

Zacks Equity Research
·5 mins read

National Oilwell Varco, Inc. NOV is set to release first-quarter 2020 earnings results on Apr 27, after market closes.

The current Zacks Consensus Estimate for the to-be-reported quarter’s earnings is pegged at 10 cents per share on expected revenues of $1.97 billion.

Let’s delve into the factors that might have impacted the company’s performance in the March quarter.

Factors at Play

In the first quarter, the company’s lower deliveries of capital equipment are likely to have been partially compensated by a marginal rise in aftermarket sales.

Significant growth in land rig equipment sales along with sales of older inventory at soft margins and an advancement in offshore projects drove Rig Technologies segment’s revenues in the last reported quarter, a trend that most likely continued in the first quarter as well. Evidently, the Zacks Consensus Estimate for first-quarter revenues from the Rig Technology unit stands at $664 million, suggesting a 10.11% rise from the year-ago reported figure of $603 million.

However, the backlog orders in the Completion & Production Solutions segment are likely to have decreased in the first quarter amid coronavirus pandemic, resulting in crude price slump and weak drilling rig activities. The current bleak economic scenario is expected to have aggravated the already deteriorating conditions in the U.S. completion markets.

The Zacks Consensus Estimate for first-quarter backlog orders from the Completion & Production units is pegged at $200 million, indicating a 57.4% plunge from the year-earlier reported figure of $470 million.

Moreover, the consensus mark for backlog orders from the Rig Technology unit stands at $200 million, implying an 18.7% drop from the prior-year reported number of $246 million.

During the fourth-quarter earnings call, National Oilwell had anticipated factors like coronavirus, oil prices, seasonality and the budgeting practices of evolving E&Ps to pose a threat to the company’s first-quarter results. At the same time, the company expected revenues for Wellbore Technologies segment to decline between 6% and 12% with depressed margins in the mid-30% range. Notably, the Zacks Consensus Estimate for the segment’s first-quarter revenues is pegged at $691 million, implying a 14.4% fall from the year-ago reported figure of $807 million.

What Does Our Model Say?

The proven Zacks model does not conclusively predict an earnings beat for National Oilwell 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: National Oilwell has an Earnings ESP of -19.10%.

Zacks Rank: National Oilwell carries a Zacks Rank #3.

The above combination leaves surprise prediction inconclusive.

Highlights of Q4 Earnings & Surprise History

In fourth-quarter 2019, the company reported adjusted earnings of 13 cents per share, missing the Zacks Consensus Estimate of 16 cents as North American drillers scaled back their production growth plans, leaving less scope of work for players like National Oilwell. However, the bottom line improved from the year-ago earnings of 3 cents. Particularly, better-than-expected revenue contribution from the Rig Technologies and the Wellbore Technologies segments led to this outperformance.

Total revenues of $2.28 billion outperformed the Zacks Consensus Estimate of $2.10 billion but dipped 4.6% from the year-ago number of $2.39 billion.

As far as the earnings surprise track is concerned, this Houston, TX-based company’s bottom line missed the Zacks Consensus Estimate in three of the trailing four quarters while beating the same in the remaining quarter, the average negative surprise being 202.03%. This is depicted in the graph below:

National Oilwell Varco, Inc. Price and EPS Surprise

National Oilwell Varco, Inc. Price and EPS Surprise
National Oilwell Varco, Inc. Price and EPS Surprise

National Oilwell Varco, Inc. price-eps-surprise | National Oilwell Varco, Inc. Quote

Stocks to Consider

While earnings beat looks uncertain for National Oilwell, here are some firms worth considering from the energy space on the basis of our model, which shows that these have the right combination of elements to beat on earnings this season:

Transocean Ltd. RIG has an Earnings ESP of +0.56% and a Zacks Rank of 3. The company is scheduled to release earnings on Apr 29.

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

Southwestern Energy Company SWN has an Earnings ESP of +30.00% and a Zacks Rank #2. The firm is scheduled to release earnings on Apr 30.

Laredo Petroleum, Inc. LPI has an Earnings ESP of +5.00% and a Zacks Rank of 3. The firm is scheduled to release earnings on May 6.

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Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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Transocean Ltd. (RIG) : Free Stock Analysis Report
 
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