In a Feb. 7 research note, Stifel analyst Stephen Gengaro reported National Oilwell Varco (NOV:NYSE) ended 2018 solidly, but outlook for the company near term is "uncertain" and for the rest of 2019 is "cloudy."
Stifel reduced its estimates and lowered its target price on National Oilwell to $37 per share from $46. The stock is currently trading at around $29.79.
Stifel's concerns about National Oilwell are only short term, Gengaro asserted. In fact, the firm expects boosted revenue and cash flow in H2/19 and into 2020, and likely beyond. Those increases will come from undersupplied crude oil markets.
The analyst provided numbers that depict the energy company's growth during Q4/18.
EBITDA in Q4/18 rose 14% from the previous quarter and exceeded Stifel's forecast by 11%. The main driver was "upside in all three segments," each of which "generated sequential revenue growth and margin improvement," explained Gengaro.
Revenue was $2.4 billion, an 11% increase over Q3/18, on more drill pipe deliveries, some accelerated, an expanding rig count, and increased coiled tubing and wireline sales. Drilling motors grew 60% year over year in Q4/18.
The balance sheet "remains rock solid with a net-debt-to-total capitalization of less than 8%," Gengaro pointed out.
He noted that two current positive factors for the company are global interest for its coiled tubing and inquiries about land rig upgrades, which continue to be robust.
Gengaro then presented the negatives concerning the near-term future of National Oilwell. One is management's weaker-than-expected Q1/19 guidance, which reflects revenue and margin drops in all three segments due to expressed customer concerns about oil price volatility and the deliveries moved up to Q4/18. Others are that new builds offshore "remain extremely limited" and new pressure pumping equipment demand has had a "sharp drop-off," Gengaro indicated. The company also faces a higher tax rate in the near term.
Stifel maintains its Buy rating on the company.
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Disclosures from Stifel Nicolaus & Company, National Oilwell Varco Inc., February 7, 2019
I, Stephen Gengaro, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, Stephen Gengaro, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Our European Policy for Managing Research Conflicts of Interest is available at www.stifel.com.
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