National Oilwell (NOV) Shares Decline 8% On Drab Q1 Outlook

National Oilwell Varco, Inc.’s (NYSE:NOV) shares dipped more than 8% to close at $26.87 on Apr 12, after the company’s Chairman Clay Williams (NYSE:WMB) stated that the energy equipment supplier’s first-quarter 2019 results are likely to be impacted by certain headwinds. The firm expects revenues to come in below prior expectation of $2.08-$2.1 billion. National Oilwell now anticipates first-quarter 2019 sales to come in at $1.94 billion, reflecting a sequential fall of 26%. Further, it expects to post a GAAP operating loss of around $48 million. Adjusted EBITDA is likely to total $140 million, down from $160 million and $279 million recorded in first-quarter 2018 and the last reported quarter, respectively.

Notably, during National Oilwell’s fourth-quarter call, management had already notified investors that the oil crash during the final months of 2018 would likely take a toll on the firm’s near-term results. In fact, the company did predict a sequential fall in revenues from all the three segments—Rig Technologies, Wellbore Technologies and Completion & Production— in first-quarter 2019. However, the impact of weak oil prices has been much greater than expected.

What’s the Crux of the Matter?

The oil crash toward the end of 2018 caught the energy companies off guard, especially the oilfield services players. After touching multi-year highs of $76.40 a barrel in early October 2018, prices slid below $45 in late December amid oversupply concerns and weakening demand. Weaker demand for oilfield equipment due to low prices persisted in the first quarter of 2019 as well. Amid the growing crisis, many exploration and production companies slashed capital spending for 2019, further hurting the performance of oilfield equipment providers like National Oilwell.

Contraction of orders, fewer deliveries of drill pipes and other equipment, and slowdown of activities in both the offshore and North American markets will impact the company’s first-quarter results. As such, the firm will likely come up with lower-than-expected results from each of its three segments amid tough operating environment.

What Lies Ahead?

Indeed, the year 2019 witnessed a rebound in oil prices, with crude popping up to $60.55 a barrel in March-end, posting the biggest first-quarter gain in a decade. WTI has been currently trading over $63 a barrel, underpinned mainly by OPEC+ supply cuts, and U.S. sanctions against Venezuela and Iran.

The improving energy landscape is gradually leading to ramped-up activities in the United States along with steady increase in new order bookings. Nonetheless, pipeline concerns and curtailed capex for 2019 by energy producers will definitely keep a tab on upstream activities. With infrastructural log jams likely to take another year to get in place, short-term prospects for National Oilwell seem a little challenging. Further, while things have gradually started looking up for international and offshore market, recovery is still not around the corner.

While National Oilwell believes that improving commodity prices will aid the firm’s results and backlogs as it progresses through 2019, it still maintains a bleak outlook for the current year. The company is presently focusing on adapting to the current market scenario. Initiatives like expansion or addition of new market offerings, adoption of superior technologies, innovation of business processes, and integration of value chain offerings, acquisitions and profitable collaborations, among other strategic strides, will enable the firm to perform well in the current market scenario.

Zacks Rank and Key Picks

National Oilwell currently carries a Zacks Rank #3 (Hold).

Investors interested in the same industry can consider Dril-Quip, Inc. (NYSE:DRQ) , Superior Energy Services, Inc. (NYSE:SPN) and USA Compression Partners, LP (NYSE:USAC) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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