National-Oilwell Varco - A Long-Term Investment With Strong Growth Track Record

| About: National Oilwell (NOV)
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Shares of National-Oilwell Varco (NOV) fell over 7% in the past trading week. The provider of equipment for the oil and gas industry reported its third quarter results on Thursday.

Third Quarter Results

National-Oilwell Varco reported third quarter revenues of $5.3 billion, up 12% on the second quarter. Revenues are up 42% compared to revenues in the third quarter of 2011. Analysts expected the company to report revenues of $5.36 billion.

The company net earned $612 million in the third quarter, up from $605 million in the second quarter of 2012. Earnings per share rose to $1.43 per share, compared to last year's earnings of $1.25 per diluted share.

Excluding transaction costs, earnings per share came in at $1.52, beating analysts consensus by a penny.

CEO and Chairman Pete Miller commented on the results, "Outstanding execution enabled the Company to achieve solid earnings again this quarter. We are pleased by the level of bookings into our capital equipment backlog for the Rig Technology segment during the third quarter. We continue to see steady activity around new orders, and expect high demand for deepwater rigs to drive solid orders again in the fourth quarter. Demand for other NOV products and services continued to grow in international markets, but softening demand in North America partly offset this trend during the third quarter."

Segmental Information

Rig Technology

Revenues for the rig technology segment hit a record $2.55 billion, up 29% on the year. Operating profit came in at $610 million, up 15% on the year. The division reported $2.29 billion in new orders, creating a backlog of $11.66 billion.

Petroleum Services & Supplies

Revenues for the Petroleum services unit came in at $1.72 billion, up 18% on the year. Operating profit rose 28% to $383 million.

Distribution & Transmission

Revenues from distribution and transmission activities rose 173% to $1.31 billion. Operating profits more than doubled to $78 million. Results from the division were driven by acquisitions.


National-Oilwell Varco ended its third quarter with $1.7 billion in cash and equivalents. The company operates with $1.5 billion in short and long term debt, for a modest net cash position.

For the first nine months of 2012, National-Oilwell Varco generated revenues of $14.3 billion. The company reported a net profit of $1.8 billion, or $4.28 per diluted share. Full year revenues could come in around $19-$20 billion for the full year. The company is on track to earn roughly $2.5 billion, or around $5.75 per share.

The market currently values the company at $32 billion. This values the firm at roughly 1.6 times annual revenues and 13 times annual earnings.

Currently, National-Oilwell Varco pays a quarterly dividend of just $0.12 per share, for an annual dividend yield of 0.7%.

Investment Thesis

Year to date, shares of National-Oilwell Varco have risen some 10%. Shares rose from $70 in January to peak at $85 in February. Shares hit lows in June of the year around $60, as investors were afraid that lower oil and natural gas prices would lead to project delays at large energy companies. Shares recovered, currently exchanging hands at $75 at the moment.

Over the past five years, shares are trading roughly flat. Shares fell from $80 in 2008 to lows of $20 later that year. Shares quickly rebounded and recovered to previous levels. Between 2008 and 2012, the company has grown its revenues from $14.0 billion to an estimated $19-$20 billion this year. Net income rose from $2.0 billion, to an estimated $2.5 billion.

The company made a sizable acquisition when it announced to acquire Robbins & Myers (RBN) in a deal valuing the company at $2.5 billion. The deal will add roughly 5% in total revenues and earnings for National Oilwell. Earlier this year, National-Oilwell completed the acquisition of the Wilson piping and fitting unit from Schlumberger (SLB).

National-Oilwell Company has a excellent long term track record in creating shareholder value. I think shares are rather appealing given the strong balance sheet and fair valuation multiples. Rather than paying fat dividends, the company is using its excess capital to make value-creating long term acquisitions.

National-Oilwell Company is a perfect addition for any portfolio, offering long term growth potential.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.