uploads///Upstream capex and EBITDA

What’s Affected National Oilwell Varco’s Margin in 2017

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Upstream operators’ capex cut

Between 2Q16 and 2Q17, 19 of the largest US energy exploration and production companies, in aggregate, slashed their capex by 8%. In general, lower upstream capex results in lower revenue and narrower operating margins for oilfield services and equipment companies.

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National Oilwell Varco’s earnings margin

As shown in the graph above, National Oilwell Varco’s (NOV) EBITDA (earnings before interest, tax, depreciation, and amortization) margin staged a strong comeback in 2Q17, despite upstream operators’ lower capex. Between 2Q16 and 2Q17, NOV’s EBITDA margin recovered to 6.4% from -5.3%. National Oilwell Varco makes up 0.05% of the iShares Dow Jones US ETF (IYY). IYY has risen 13% in the past year, whereas NOV has fallen 9%.

Peers’ earnings margins

Core Laboratories’ (CLB) EBITDA margin stood at 22% in 2Q17, Flotek Industries’ (FTK) was 2.3%, and Basic Energy Services’ (BAS) stood at 5.1%. For more on BAS, read Can Basic Energy Services Bounce Back after Bankruptcy?. The energy sector makes up 6.0% of S&P 500 (SPX-INDEX). The SPX-INDEX has risen 13% in the past year.

The rig count and its effects

At the end of 2Q17, the US rig count had risen 14% in the past year. The US rig count reached a multiyear high in September 2014. Since then, it has dropped 51%.

Between 2Q17 and the week ended September 1, 2017, the US rig count rose marginally, closing at 943. A rig count deceleration could negatively affect NOV’s revenue and earnings in 2017. Next, we’ll discuss National Oilwell Varco’s dividends and dividend yields.

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