What Does NOV’s Management Think about Its Outlook?



What does NOV’s CEO think?

NOV’s management indicates that it is actively looking for merger and acquisition opportunities to gain market share when the energy market upturn begins. However, it believes that the energy market weakness will continue to hamper drilling activity in 4Q15.

In the 3Q15 earnings press release, Clay Williams, chair and CEO of NOV, stated, “The sharp decline in oil prices and activity since late last year has impacted each of our segments, and will drive activity lower in the fourth quarter. We believe our strong financial resources will enable National Oilwell Varco to invest in the extraordinary opportunities that will arise from this downturn, and we expect to emerge with greater capability and efficiency.”

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What Does NOV’s management think?

In its 3Q15 earnings conference call, NOV’s management anticipated lower volume and margins in 4Q15 despite NOV’s efforts to improve returns by cutting operational costs. Jose Bayardo, NOV’s CFO, commented, “Resizing the business to reflect market activity remains critical to margin preservation, and we will continue to focus on cost-reduction opportunities including process efficiencies, vendor pricing, and facility consolidations to better align our resources with anticipated production levels. That said, cost control will not be enough to fully offset the impact of lower volumes, and we anticipate segment margins will decline into the mid-teens during the fourth quarter.”

Analyst targets for NOV

Given the unpredictability of energy price recovery, Wall Street analysts’ opinions show limited upside potential about NOV’s target prices in the next 12 months. While the highest target price for NOV is $55, the lowest is $29. The median target price among the sell-side analysts for NOV is ~$39. NOV is currently trading at $33, implying an 18% upside at its median price. RPC (RES), a smaller player in the oilfield equipment and service industry, received a $12.3 median target price. This, relative to its current price of ~$12, implies a 2% upside. NOV makes up 1.4% of the Energy Select Sector SPDR ETF (XLE).

Next, we will discuss NOV’s revenue and earnings by segment.


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