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National Oilwell Varco is cruising along

By Jim Mueller, CFA - Apr 11, 2013 at 12:00AM

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National Oilwell Varco (NYSE: NOV) is cruising along. When it reported Q4 2012 results, all three segments of its business grew year over year, though only two were up sequentially.


Revenue ($MM)

Growth, YOY

Growth, Sequential

Rig Technology




Petroleum Services & Supplies




Distribution & Transmission




Source: Company press release and author calculations.

For the year, all three segments grew: by 29.8%, 23.2%, and 109.7%, respectively.

More importantly, the order backlog number -- one of the three areas to watch that I called out -- set a record high, coming in at $11.86 billion, up 2% from the third quarter. New orders amounted to $2.42 billion, which means that demand is still high for what National Oilwell sells.

This is reflected in continued growth in the undersea drilling environment. Chief Operating Officer Clay Williamson gave several reasons why this is likely to continue, expressing bafflement at the Wall Street view that drilling rig orders will slow down. These include after-tax returns in the high teens, faster delivery, generous payment terms, several new deepwater oil-field discoveries, and utilization and day rates for scarce rigs staying high. This indicates that the risk of rig oversupply has not yet reared its head and, I believe, will likely remain low for a few more years.

Williamson is the newly promoted COO, moving from the CFO role. Current CEO Pete Miller gave up the role of president and his day-to-day operational duties as he prepares for his eventual retirement. (The man is 62, so it probably won't be too far away.) Miller has said that the eventual new CEO will come from inside the company , and Williamson seems to be the man being groomed for the top spot.

The company is experiencing some headwinds regarding decreased onshore drilling activity in North America , and this helped explain the drop in share price from about $74 prior to the earnings release to the upper $60 range where it's been since. However, I believe that this is a relatively temporary situation and that other aspects of the business continue to grow (e.g. deepwater and international land drilling). Furthermore, I agree with Morningstar's Stephen Ellis that the prospect of aftermarket work on the current drill rig fleet as year service requirements is an under-the-radar opportunity that the company will be taking advantage of.

Finally, the company recently closed on its acquisition of Robbins & Meyers, continuing its very successful merger activity, adding capability to its services and supplies segment.

To sum up, NOV had a successful fourth quarter, encountered some headwinds coming into this year, but overall looks to be a sound company performing critical work for a growing drilling industry.

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