National Oilwell Varco: Digging For Dollars

National Oilwell Varco, (NOV) is perhaps the dominant player in the world of drilling equipment and services. NOV provides virtually every possible product and service to a variety of drilling activity. From tools, pumps, technical equipment and tubing, right down to pair of work gloves anything that helps a crew explore complete or develop an energy asset comes from National Oilwell Varco.

The fundamentals are compelling, the company trades at 14 times projected earnings, and estimates suggest the company will grow at 28% annually for the next 5 years. Quarterly revenue growth is 43% year over year and the resulting quarterly earnings growth is 129% from the previous year. Net income reported in the past 4 quarters has grown from $147.9 million to $275.9 million, an increase of 86%.

Consider the following:

Global demand for oil services and equipment significantly exceeds capacity.
Long term debt is less than 5% of the net worth of the company.
This company has consistently beaten analyst’s earnings expectations.
It has a strong contract backlog extending into the next decade.

This company has a history of smart acquisitions, which has significantly expanded its capabilities and global footprint. If you believe as I do, that more drilling activity whether its oil or gas, land based or offshore, is both necessary and inevitable, then NOV is almost certain to be a strong beneficiary.

Disclosure: Author has a long position in National Oilwell Varco

Comments

[Richie]

Hi David,

You don't think NOV may be a bit overbought? Compare its current and forward PE to GRP's. Additionally, all other comments you make vis-a-vis NOV, also apply to GRP.