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Summary

  • Potential large increase to dividend coming.
  • Inexpensively valued based on next year's earnings.
  • Mid-term top in the stock price is near.

The last time I wrote about National Oilwell Varco, Inc. (NYSE:NOV) I stated, "…I'm going to be pulling the trigger on a very small batch of this particular name right now." Since the last article, it popped a whopping 5.63% versus the 5.83% gain the S&P 500 (NYSEARCA:SPY) posted. Varco provides equipment and components for oil and gas drilling and production; oilfield services; and supply chain integration services to the upstream oil and gas industry worldwide.

On January 31, 2014, the company reported fourth quarter earnings of $1.56 per share, which beat the consensus of analysts' estimates by $0.17. In the past year, the company's stock is up 16.83%, excluding dividends (up 18.03% including dividends), and is losing to the S&P 500, which has gained 23.64% in the same timeframe. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the basic materials sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 14.41, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 11.22 is currently inexpensively priced for the future in terms of the right here, right now. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company. Next year's estimated earnings are $6.97 per share and I'd consider the stock inexpensive until about $105. The 1-year PEG ratio (1.05), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 13.68%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 13.68%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 12.43%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to it.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

05De13

81.85

14.99

13.03

6.28

94

0.87

17.14

06Jan14

79.49

14.56

12.72

6.25

94

0.88

16.59

06Feb14

74.17

13.41

11.98

6.18

93

0.86

15.53

06Mar14

78.23

14.41

11.22

6.97

105

1.05

13.68

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 1.33% with a payout ratio of 19% of trailing 12-month earnings while sporting return on assets, equity and investment values of 6.8%, 10.9% and 9.4%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.33% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 5 years. Below is a comparison table of the financial metrics for National Oilwell Varco for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

05Dec13

1.27

19

7.0

11.2

10.8

06Jan14

1.31

19

7.0

11.2

10.8

06Feb14

1.40

19

7.0

11.0

8.7

06Mar14

1.33

19

6.8

10.9

9.4


Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock is near overbought territory with a value of 61.10 and upward trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars increasing in height, indicating bullish momentum. As for the stock price itself ($78.23), I'm looking at $80.15 to act as resistance and the 50-day simple moving average (currently $76.47) to act as support for a risk/reward ratio, which plays out to be -2.25% to 2.45%.

Recent News

  1. The company declared a quarterly dividend of $0.26 per share. The ex-date will be 12Mar14 with a pay date of 28Mar14.
  2. Clay Williams was named the new President and CEO. The appointment was effective immediately as of seven days ago. Mr. Williams has been in the energy industry for over 20 years and has been the company's COO since 2012, so I have no doubt that he will run the company very well since he is very familiar with the operations already.

Conclusion

The company saw options trading increase by eleven times back on the 24th of February, indicating someone is getting extremely bullish on the company. Fundamentally, the company is inexpensively priced based on future earnings, but fairly priced on future growth potential. Financially, I believe we have a secure yield, which can be raised significantly the next time the company announces its dividend. On a technical basis, I believe there is more upside to come but it will be very limited. Due to the technicals nearing a mid-term top, low dividend yield, and fair valuation with respect to earnings growth, I'm not going to pull the trigger on this particular name right now.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: No Other Vendor For Dividends; The National Oilwell Varco Story