Why National-Oilwell Varco Inc. Shares Slipped This Morning

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of National-Oilwell Varco  (NYSE: NOV  ) slipped slightly in pre-market trading Monday after Goldman Sachs downgraded the oil-field services giant from buy to neutral.

So what: Along with downgrade, analyst Waqar Syed lowered his price target to $85 (from $90), representing about 13% worth of upside to Friday's close. So while contrarians might be attracted to the stock's year-to-date slump, Syed's call suggests strengthening bearishness on Wall Street over its near-term turnaround prospects. 

Now what: According to Goldman, National-Oilwell's risk/reward trade-off is pretty balanced at this point. "As competition increases between new rigs entering the market and older rigs coming due for re-contracting, we see dayrates declining and hence lowering the incentive for companies to order new rigs at this point," noted Syed. "NOV has a high degree of leverage to this newbuilding cycle, and we prefer to stay on the sidelines as inbound orders will likely slowdown in 2014, and book-to-bill falls below 1.0 in 2H 2014." Of course, with the stock off about 12% from its 52-week highs and sporting a cheapish forward P/E of 11, those short-term concerns might be giving energy-savvy Fools with a solid long-term opportunity.

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  • Report this Comment On March 17, 2014, at 12:46 PM, jhf678 wrote:

    from $90 to $85 price target, which means it is still a buy.

  • Report this Comment On March 19, 2014, at 8:38 PM, TDRH wrote:

    Not a bad call. Long term holder, but would not buy more at these levels. Split of Distribution group would have been a natural short position but Miller seems to want a challenge and is going with the new entity. Do not see the spinoff sustainable without NOV OEM spare parts, but not willing to bet against it No clear play here.

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