Why Is National Oilwell Varco (NOV) Down 6% Since Last Earnings Report?

It has been about a month since the last earnings report for National Oilwell Varco (NYSE:NOV). Shares have lost about 6% 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 Varco Posts Surprise Q3 Loss

National Oilwell Varco incurred an adjusted loss of 61 cents per share in third-quarter 2019, versus the Zacks Consensus Estimate for earnings of 10 cents. The bottom line also fell from the break-even earnings of the year-ago quarter as North American drillers scale back their production growth plans, leaving less scope of work for the likes of National Oilwell Varco. Particularly, weaker-than-expected revenue contribution from the Rig Technologies and the Wellbore Technologies segments caused this underperformance.

Rig Technologies segment’s revenues of $649 million missed the Zacks Consensus Estimate of $686 million due to lower North American onshore capital equipment sales.

Further, revenues from the Wellbore Technologies segment came in at $793 million, significantly below the Zacks Consensus Estimate of $839 million. The unit’s disappointing performance is due to soft demand for the unit’s products and services in a contracting North American market.

Moreover, total revenues of $2.13 billion lagged the Zacks Consensus Estimate of $2.17 billion and also dipped 0.9% from the year-ago period.

Segmental Performance

Rig Technologies: Revenues came in at $649 million compared with $637 million in the year-ago quarter, reflecting a 1.8% increase owing to higher offshore rig activity and better sales from aftermarket operations. Moreover, the unit’s adjusted EBITDA was $105 million, up 34.61% from $78 million in the year-ago quarter. This gain is backed by the company’s cost-cutting initiatives.

Wellbore Technologies: Segmental revenues fell 6.3% year over year to $793 million as a result of reduced drillpipe deliveries and waning demand for the unit’s short-cycle products. Meanwhile, the unit’s adjusted EBITDA of $133 million slipped from last year’s $135 million.

Completion & Production Solutions: Revenues at the segment were $728 million, down 1% from $735 million in the year-earlier quarter. The unit recorded adjusted EBITDA of $82 million, which is 17.2% lower than the year-ago figure of $99 million as customers continue to focus on minimal spending.

Backlog

Capital equipment order backlog for Rig Technologies was $3.14 billion as of Sep 30, 2019 including $221 million worth of new orders.

Meanwhile, the Completion & Production Solutions segment’s backlog for capital equipment orders totalled $1.3 billion at the end of the third quarter. The figure included $535 million worth of new orders.

Balance Sheet

As of Sep 30, 2019, the company had cash and cash equivalents of $1.31 billion and long-term debt of $2.48 billion. The debt-to-capitalization ratio was 23.4%.

Meanwhile, National Oilwell’s third-quarter cash flow is the strongest in more than three years, courtesy of efficient capital program management.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 46.02% due to these changes.

VGM Scores

At this time, National Oilwell Varco has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

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