Can National Oilwell Varco Keep Growing?

On Friday, National Oilwell Varco (NYSE: NOV  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

National Oilwell Varco has become a vital go-to provider of vital materials for the energy industry, with products ranging from drilling pipe to full rigs and derricks. Yet with energy prices having been weak lately, production activity has slowed, putting pressure on the company. Let's take an early look at what's been happening with National Oilwell Varco over the past quarter and what we're likely to see in its quarterly report.

Stats on National Oilwell Varco

Analyst EPS Estimate

$1.36

Change From Year-Ago EPS

(5.6%)

Revenue Estimate

$5.38 billion

Change From Year-Ago Revenue

25%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will National Oilwell Varco keep on growing this quarter?
In recent months, analysts have cut their views on Varco's earnings substantially, with a $0.14 per share drop for the just-ended quarter and a more than $0.50 per share decline in expectations for the full 2013 year. The stock has also suffered from the pessimism, falling nearly 8% since mid-January.

National Oilwell Varco has continued to capitalize on being a one-stop shop for exploration and production companies of all sizes, providing the materials that producers need in order to find and extract oil and gas from their wells. Varco's solid business model even attracted the attention of Warren Buffett, who started buying the stock last year and who added further positions during the past quarter.

The concern that many investors have about Varco is that drilling activity has been on the decline, especially onshore. Yet recent results from Varco's competitors seem to make those fears seem overblown. Halliburton (NYSE: HAL  ) , which concentrates on domestic drilling, saw North American revenue drop sequentially in its most recent quarter, but rig counts were down just 3%. Moreover, with natural gas prices having risen recently, it's entirely possible that growth will return on the gas side of the business, propelling further growth.

Moreover, offshore opportunities for Varco could outweigh any slowdown in onshore drilling. The company commented last quarter that its outlook for deepwater rig orders is far more optimistic than much of the rest of the industry, pointing to continued strong demand and high rates as evidence. That's consistent with the results we saw from Core Laboratories (NYSE: CLB  ) last week, which has gotten a lot of its growth recently from its emphasis on international deepwater plays.

In Varco's quarterly report, watch to see if the company finally starts paying a more reasonable dividend. With just an 8% payout ratio, even concerns about future growth prospects shouldn't hold the company back from returning more of its earnings to shareholders.

National Oilwell Varco is perhaps the safest investment in the energy sector due to its industry-dominating market share. This company is poised to profit in a big way; its customers are both increasing the number of new drilling rigs and updating aging fleets of offshore rigs. To help determine if it could be a good fit for your portfolio, you're invited to check out The Motley Fool's premium research report featuring in-depth analysis on whether Varco is a buy today. For instant access to this valuable investor's resource, simply click here now to claim your copy.

Click here to add National Oilwell Varco to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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