Why Is National Oilwell Varco (NOV) Down 28.4% Since Last Earnings Report?

A month has gone by since the last earnings report for National Oilwell Varco (NYSE:NOV). Shares have lost about 28.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is National Oilwell Varco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

National Oilwell Q4 Earnings Lag, Revenues Beat Estimates

National Oilwell Varco, Inc. reported adjusted earnings of 13 cents per share in fourth-quarter 2019, missing the Zacks Consensus Estimate of 16 cents as North American drillers scale back their production growth plans, leaving less scope of work for the likes of National Oilwell Varco. However, the bottom line improved from the year-ago earnings of 3 cents. Particularly, better-than-expected revenue contribution from the Rig Technologies and the Wellbore Technologies segments led to this outperformance.

Rig Technologies’ revenues of $759 million surpassed the Zacks Consensus Estimate of $681 million owing to improved land rig deliveries and enhancement of offshore equipment projects.

Further, revenues from the Wellbore Technologies segment came in at $764 million, significantly above the Zacks Consensus Estimate of $746 million. The unit’s enhanced performance is attributable to recovery in the international and offshore market conditions and a better product mix.

Total revenues of $2.28 billion outperformed the Zacks Consensus Estimate of $2.10 billion but dipped 4.6% from the year-ago number of $2.39 billion.

Segmental Performance

Rig Technologies: Revenues summed $759 million compared with $804 million in the year-ago quarter, reflecting a 6% decrease, thanks to lower equipment sales. However, the unit’s adjusted EBITDA was $112 million, up 10% from $102 million in the year-earlier quarter. This gain is backed by the company’s cost-cutting initiatives.

Wellbore Technologies: Segmental revenues fell 14% year over year to $764 million as a result of reduced drilling operations in North America. Meanwhile, the unit’s adjusted EBITDA of $143 million decreased from the prior-year’s $155 million.

Completion & Production Solutions: Revenues at the segment were $799 million, up 1.4% from $788 million in the year-earlier quarter as offshore and international demand grew. The unit recorded adjusted EBITDA of $96 million, 14% lower than the year-ago figure of $112 million on steep decline in North American completion activities as customers continue to curtail spending.

Backlog

Capital equipment order backlog for Rig Technologies was $3 billion as of Dec 31, 2019 including $211 million worth of new orders.

Meanwhile, the Completion & Production Solutions’ backlog for capital equipment orders totalled $1.3 billion at the end of the fourth quarter. The figure included $502 million worth of new orders.

Balance Sheet

As of Dec 31, 2019, the company had cash and cash equivalents of $1.17 billion and long-term debt of $1.99 billion. The debt-to-capitalization ratio was 20.22%.

The Path Ahead

Although the domestic oil producers are unlikely to increase their spending anytime soon, the company sees a stronger offshore and aftermarket business. In response to the changing market dynamics, National Oilwell Varco will likely sustain its disciplined approach to capital spending and improvement in its efficiency level.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -11.29% due to these changes.

VGM Scores

At this time, National Oilwell Varco has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, National Oilwell Varco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.