National Oilwell (NOV): What's Up this Earnings Season?
Houston, TX-based energy equipment manufacturer National Oilwell Varco Inc. NOV is set to release third-quarter 2016 financial results before the opening bell on Oct 27.
Last quarter, the company delivered a positive earnings surprise of 9.09% on the back of cost reduction efforts and efficiency gains. Moreover, National Oilwell posted an average positive earnings surprise of 20.74% in the last four quarters. Let’s see how things are shaping up for this announcement.
Factors Likely to Influence This Quarter
National Oilwell boasts a strong balance sheet with a debt-to-capitalization ratio of about 17%. The company’s financial flexibility and strong balance sheet make it better suited than most of its peers to withstand volatile commodity prices.
Moreover, the surprise decision by the OPEC to cut crude output is expected to bring the much-needed stability to the market as oil price is expected to improve steadily. Riding on the new-found optimism, multinational oil enterprises will now be able revive spending on drilling activities, which in turn, that would increase rig count. This will result in improved demand for oilfield equipments, thereby driving National Oilwell’s revenues, earnings and cash flow. We expect to see an impact of these favorable developments on the company’s upcoming earnings and more so going forward.
However, oilfield service stocks are extremely volatile and the correlation of their movement with underlying business fundamentals is sometimes difficult to establish. Given that National Oilwell’s business is mainly associated with drilling-related work its revenues are likely to be hurt by the decline in rig count that adversely affected overall activities during the quarter.
NATL OILWELL VR Price and EPS Surprise
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Earnings Whispers
Our proven model does not conclusively show that National Oilwell is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The company currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 28 cents per share.
Zacks Rank:National Oilwell carries a Zacks Rank #3, which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.
The Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies from the energy space that, according to our model, have the right combination of elements to post an earnings beat this quarter.
CONE Midstream Partners LP CNNX is expected to release earnings results on Nov 4. The partnership has an Earnings ESP of +2.70% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
CSI Compressco LP CCLP has an Earnings ESP of +27.27% and a Zacks Rank #3. The company is anticipated to release earnings on Nov 4.
Antero Midstream Partners LP AM has an Earnings ESP of +8.82% and a Zacks Rank #2. The company is likely to release earnings on Oct 26.
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