uploads///Upstream capex and EBITDA

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



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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