If you're just getting to know National Oilwell Varco
"Drilling consumes an awful lot of stuff that we make."
So there you go. National Oilwell Varco is drilling. Following a long line of acquisitions, this company is the go-to provider of equipment like drawworks, mud pumps, and top drives for big rigs ordered up by contractors like Noble
NOV's first-quarter results weren't much changed from last quarter, with revenues on the light side and margins picking up some of the slack. The rig technology segment actually reported record margins, as the firm wrung further efficiencies out of its rig manufacturing business. (It's done so for years.)
Management characterized the current state of affairs on the conference call by noting, "You're always either too small as drilling and demand rise quickly, or your operations are too big when activity plummets." Following the downturn last year, NOV finds itself a little too big. Investors' main preoccupation is thus whether demand levels, particularly for the firm's big-ticket offshore drilling rig packages, can return to anything like their former glory.
Not so long ago, NOV sported an order backlog of more than $11 billion. With rig deliveries outpacing new orders since the fourth quarter of 2008, that backlog has now been cut in half. The most visible source of future customer wins -- Petrobras'
These firms really need the likes of ExxonMobil
To me, shares of NOV look like a fairly prudent bet on the long-term health of this industry. I happen to prefer the indispensable Core Laboratories, but you may prefer your businesses a bit beefier than I do.