National Oilwell Varco’s Opportunities and Concerns
National Oilwell Varco’s stock price and key drivers
Since September 9, 2016, National Oilwell Varco (NOV) stock has fallen 4% as of September 8, 2017. During this period, National Oilwell Varco has outperformed the VanEck Vectors Oil Services ETF (OIH), which has generated -16% returns. The Energy Select Sector SPDR ETF (XLE), the broader energy industry ETF, has produced -8% returns since September 9, 2016. So, National Oilwell Varco has outperformed OIH and XLE in the trailing year to September 8, 2017.
National Oilwell Varco has underperformed the SPDR S&P 500 ETF (SPY), which has produced 16% returns since September 9, 2016. The Dow Jones Industrial Average (DJIA-INDEX) has risen 21% during the same period.
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Since September 9, 2016, the West Texas Intermediate crude oil prices have risen 3.5%. To learn more, read Crude Oil: How It Influences Your Energy Investments. The hike in crude oil prices led to an 86% rise in the US rig count since the week ending September 9, 2016. To learn about how top OFS companies like Schlumberger (SLB) and Halliburton (HAL) have been faring, read SLB, HAL, NOV, WFT: How They Stack Up after 2Q17.
New order bookings
National Oilwell Varco booked $124 million in new orders in 2Q17, which was an improvement compared to 1Q17. Land-related orders accounted for 60% of National Oilwell Varco’s total new order bookings. It included a 1,500-horsepower AC Ideal Rig and a land equipment package that includes the NOVOS Control System. National Oilwell Varco’s NOVOS is a process automation platform that manages rig equipment to execute drilling programs. According to National Oilwell Varco, NOVOS reduces drilling connection times, which results in savings.
Rig Systems’ lower revenues
National Oilwell Varco’s management estimated $1.0 billion in revenues in the Rig Systems in 3Q17, which would be a 29% fall from $1.4 billion in 2Q17. The estimate is based on lower rig revenue due to the slow recovery in the land drilling market.
We have already discussed National Oilwell Varco’s value drivers in What Lies Ahead for National Oilwell Varco in 2017. In this series, we’ll analyze National Oilwell Varco’s relative valuation multiples, what the market indicators are saying about National Oilwell Varco stock, and analysts’ recommendations for National Oilwell Varco.
In the next part, we’ll discuss National Oilwell Varco’s historical valuation multiples.