Is National Oilwell Varco Ready for a Tune-Up?

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When National Oilwell Varco (NYSE: NOV  ) tells us about its latest quarter on Friday, we might see the start of something of a more concerted lifting of the company's figurative financial hood.

After all, despite being something of a darling of the oilfield services sector -- including sporting a solid five-star rating among Motley CAPS players -- the company's shares are down about 1.5% year to date. But with its frenetic 2012 acquisitions pace likely to slow appreciably, 2013 is likely to constitute a time for a tune-up for at least a couple of the company's metrics.

The current reckoning
Before moving on, let's look at where the analysts' consensus has Varco's first-quarter results pegged. A day before that actual release, the Wall Street seers are looking for per-share earnings of about $1.36, on revenue of approximately $5.38 billion. Those figures would compare with $1.44 in year-ago earnings per share, on $4.30 billion on the top line. Revenues for the full 2013 year are expected to come in at about $24.6 billion, up from $22.8 billion last year.

It's notable that, if queried 90 days ago, the analysts would have anticipated a per-share figure for the March quarter at or above $1.50. So the forecast has slid by something approaching 10% during that period. In addition, the forecast for the June quarter is signaling a per-share slippage year over year.

This is not to imply that either Varco's allure or its prospects are in descent. After all, its nearly impossible to keep tabs on all the areas of our planet where oil and gas drilling is going great guns. And National Oilwell Varco remains the absolute premium provider and market-share leader in the vital world of systems and components for rigs used in the digging of oil and gas wells worldwide.

A chance for some fine tuning
But it's also important to note that in 2012 the company was a more ineluctable shopper than my spouse in December. Probably its key acquisition, the $2.5 billion roping of Robbins & Myers, a Houston-based provider of pump technology and flow control capacity, was completed in January. And while it's not likely that adding outside assets will come to a total halt this year, the pace of such purchases is almost certain to slacken.

One potential result is likely to be a margin improvement at the company. As of now, Varco's operating margins are running at slightly north of 17.5% on a trailing 12-month basis. That compares with a more typical 20% for the company. It's not especially surprising to see margins dip as new assets are added hand over fist. But neither is it inappropriate to expect them to begin to rebound when the purchase pace subsides.

Similarly, the company's forward dividend yield could stand some boosting, another possibility made more feasible by an acquisitions slowdown. Currently, however, with a forward yield of 0.80%, Varco falls short of such other big oilfield services providers as Schlumberger (NYSE: SLB  ) , with its 1.80% forward yield, or Baker Hughes (NYSE: BHI  ) , at 1.40%. On that basis, it would constitute a distinct positive to see National Oilwell Varco's own anticipated yield raised to at least 1.00%, a level that would hardly result in an arduous payout for the company.

Eagerly awaiting the call
Earnings season tends to serve a couple of purposes. On one hand, it obviously provides a look at a company's results for the most recent quarter and the year to date. But on the other hand, for some companies it provides management with an opportunity to describe its perspective on macro trends prevailing in the industry in question. The latter is an especially important function in energy, and is performed especially effectively and lucidly by Varco President Clay Williams. I'm therefore especially looking forward to his comments on Friday.

Interested in another perspective on National Oilwell Varco? To help determine whether 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 NOV is a buy today. For instant access to this valuable investor's resource, simply click here now to claim your copy.

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