Why Is National Oilwell Varco (NOV) Up 63% Since Last Earnings Report?

A month has gone by since the last earnings report for National Oilwell Varco (NOV). Shares have added about 63% 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 its most recent earnings report in order to get a better handle on the important catalysts.

National Oilwell Posts Narrower-Than-Expected Q3 Loss, Revenues Beat Mark

National Oilwell Varco reported adjusted loss of 1 cent per share for third-quarter 2020, narrower than the Zacks Consensus Estimate of a loss of 9 cents. Moreover, the bottom line improved from the year-ago loss of 61 cents. Particularly, better-than-expected revenues from the Completion & Production Solutions segment led to this outperformance.

Total revenues of $1.38 billion outperformed the Zacks Consensus Estimate of $1.37 billion. However, the top line plunged 34.9% from the year-ago number of $2.13 billion due to weakness in the Rig Technologies and the Wellbore Technologies unit.

Segmental Performance

Rig Technologies: Revenues summed $449 million, which missed the Zacks Consensus Estimate of $451 million and also compared unfavorably with the year-ago quarter’s $647 million, thanks to a drop in rig capital equipment sales and depressed aftermarket revenues. The unit’s adjusted EBITDA of $28 million decreased from the year-earlier quarter’s $105 million.

Wellbore Technologies: Segmental revenues of $361 million lagged the Zacks Consensus Estimate of $364 million and also fell 54.5% year over year as a result of reduced drilling operations in North America. Meanwhile, the unit’s adjusted EBITDA of $21 million deteriorated from the prior-year’s $133 million.

Completion & Production Solutions: Revenues of $601 million outperformed the Zacks Consensus Estimate of $590 million but dropped 17.44% from $728 million in the year-earlier quarter. This upside could be attributed to dwindling situations in the shorter-cycle businesses, partially offset by a strong execution of the existing backlog. The unit recorded adjusted EBITDA of $63 million, down from the year-ago figure of $82 million.

Backlog

Capital equipment order backlog for Rig Technologies was $2.66 billion as of Sep 30, 2020 including $57 million worth of new orders.

Meanwhile, the Completion & Production Solutions’ backlog for capital equipment orders totalled $789 million at the end of the third quarter. The figure included $169 million of new orders.

Balance Sheet

As of Sep 30, 2020, the company had cash and cash equivalents of $1.49 billion and long-term debt of $1.82 billion. The total debt-to-total capitalization was 24.8%.

Outlook

Despite soft bookings in the third quarter and tough market conditions, the company is witnessing a few signs of hope in the market. The drilling activity in North America is expected to pick up fairly from the current lows. Further, the international markets see lesser coronavirus-related logistical disruptions. Hence, both the company’s Rig Technologies and Completion & Production Solutions segments saw significant ramp-ups in tendering activity, hinting at the possibility of a higher order intake in the fourth quarter.

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 -22.81% due to these changes.

VGM Scores

Currently, National Oilwell Varco has a strong Growth Score of A, a grade with the same score on the momentum front. However, 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 A. 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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