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National Oilwell Varco, Inc.
(NOV-NYSE)
SUMMARY
SUMMARY DATA
Risk Level *

Average,
Type of Stock Large-Value
Industry Oil Fld Mch & Eqp
Zacks Industry Rank * 215 out of 267
Current Recommendation
NEUTRAL

Prior Recommendation
Underperform
Date of Last Change
07/11/2013

Current Price (07/15/14)
$83.88
Target Price
$88.00
We are maintaining our Neutral recommendation on
National Oilwell Varco. We like its healthy backlog, solid
balance sheet and strength in international operations,
particularly in the Middle East and Brazil. The Robbins &
Myers acquisition has further boosted NOV s earnings
visibility by expanding its blowout preventer product line; a
critical safety machine for a well. NOV s proposal to split
into two separate entities has added to the positive
sentiment. However, we think the current valuation is fair
and adequately reflects the company s future growth
prospects. Moreover, with markets remaining competitive
and pricing likely to be weak, we see no obvious catalyst
in NOV s business to significantly push the stock price
higher.
52-Week High $84.50
52-Week Low $69.40
One-Year Return (%) 17.67
Beta 1.90
Average Daily Volume (sh) 2,869,766

Shares Outstanding (mil) 429
Market Capitalization ($mil) $35,989
Short Interest Ratio (days) 3.37
Institutional Ownership (%) 86
Insider Ownership (%) 1

Annual Cash Dividend $1.84
Dividend Yield (%) 2.19

5-Yr. Historical Growth Rates

Sales (%) 16.4
Earnings Per Share (%) 9.0
Dividend (%) 44.0

P/E using TTM EPS 14.9
P/E using 2014 Estimate 13.9
P/E using 2015 Estimate 12.5

Zacks Rank *: Short Term
1 3 months outlook 4

Sell
* Definition / Disclosure on last page

ZACKS CONSENSUS ESTIMATES

Revenue Estimates
(In millions of $)
Q1 Q2 Q3 Q4 Year
(Mar) (Jun) (Sep) (Dec) (Dec)
2012
4,303 A 4,734 A 5,319 A 5,685 A 20,041 A
2013
5,307 A 5,601 A 5,687 A 6,172 A 22,767 A
2014
5,777 A 5,682 E 5,808 E 5,508 E 22,775 E
2015
5,852 E 5,798 E 23,497 E
Earnings Per Share Estimates
(EPS is operating earnings before non-recurring items, but including employee
stock options expenses)
Q1 Q2 Q3 Q4 Year
(Mar) (Jun) (Sep) (Dec) (Dec)
2012

$1.44 A $1.46 A $1.52 A $1.49 A $5.91 A
2013

$1.29 A $1.33 A $1.34 A $1.56 A $5.52 A
2014

$1.40 A $1.46 E $1.53 E $1.65 E $6.04 E
2015

$1.57 E $1.60 E $6.69 E
Projected EPS Growth - Next 5 Years % 12

July 16, 2014
Equity Research NOV | Page 2

OVERVIEW
Houston, Texas based National Oilwell Varco, Inc. (NOV), formerly National Oilwell, is a world leader in
the design, manufacture, and sale of comprehensive systems, components, products, and equipment
used in oil and gas drilling and production worldwide. The company reached its current form following the
March 2005 merger between National Oilwell and Varco International.
In April 2008, National Oilwell Varco acquired drilling-products maker Grant Prideco in a stock and cash
deal totaling about $7.37 billion. Grant Prideco s operations have been included in the company s
Petroleum Services and Supply segment. This segment now includes drilling product and services,
ReedHycalog, XL systems, and IntelliServ products of Grant Prideco. Given the lack of product overlap
between the two companies (Grant Prideco was primarily a drill-pipe and bits manufacturer with a
growing international footprint), the transaction significantly increased the size and scope of National
Oilwell Varco s product portfolio.
In May 2014, National Oilwell Varco separated its distribution business from its remaining operations,
thereby creating two independent companies.
Till recently, National Oilwell Varco divided its operations into three major segments: Rig Technology,
Petroleum Services & Supplies, and Distribution & Transmission. But effective April 1, 2014, and in
conjunction with the spin-off, the company has reorganized its operations in four business segments: Rig
Systems, Rig Aftermarket, Completion & Production Solutions, and Wellbore Technologies.

Rig Systems: The Rig Systems unit works on the lines of the Rig Technology segment and will be
accountable for the design and manufacturing of integrated drilling systems and components for land
and offshore drilling rigs.

Rig Aftermarket: The Rig Aftermarket segment is engaged in the delivery of consumables, spares
and other necessary services to maintain the usefulness of the assets.

Completion & Production Solutions: The Completion & Production Solutions segment primarily
focuses on developing wellbore completions and achieving higher production though technological
advancements. This segment mainly offers services to well intervention service providers and
producers of oil and gas.

Wellbore Technologies: The Wellbore Technologies segment focuses on improving drilling
performance at both land and offshore rigs through a vast array of tools and services.
REASONS TO BUY

National Oilwell Varco is one of the biggest manufacturers of drilling equipment in the world with an
impressive business model. The company s large installed base of rigs worldwide provides for a
steady recurring revenue stream through demand for maintenance, parts and other expendable
products.

National Oilwell Varco s recently completed acquisition of smaller rival Robbins & Myers will allow
the energy equipment contractor to broaden scale and scope of the solutions that it offers to oil and
gas customers worldwide. In particular, the move will help National Oilwell Varco to strengthen its
position as a supplier of blowout preventer (a critical safety machine that can shut a well off in case
of an emergency), as Robbins & Myers is the fourth-largest maker of such devices.
Equity Research NOV | Page 3

The growing search for oil into new deepwater frontiers has significantly increased the demand for
rigs capable of tackling the immense challenges of drilling in a mile or more of water. National Oilwell
Varco is well positioned to supply such technologically-advanced production equipment.

We remain positive on the outlook for the new National Oilwell Varco post-split, as it holds the
promise of unlocking significant value. Creation of two separate companies will allow both of them to
pursue great opportunities in their respective market segments and better serve the needs of both
investor groups without the constraints of the parent company.

National Oilwell Varco has a strong balance sheet with a debt to capitalization ratio of 12.1%.
Moreover, since it commenced paying dividends in 2009, management has increased the payout
every year. This indicates National Oilwell Varco's healthy financial position.
REASONS TO SELL

With new competitors entering the market and shrinkage of capital expenditure spending by the
drilling contractors, National Oilwell Varco has seen its new equipment package pricing fall around
10% below the levels achieved during the peak of 2007 2008. In particular, the company s margins
have been hit hard by the ongoing North American drilling slump. We expect the situation

characterized by tepid demand and weak pricing to normalize only sometime in mid-2014.

Oilfield service stocks are extremely volatile and the correlation of their movement with underlying
business fundamentals is sometimes difficult to establish. As such, shares of National Oilwell Varco
may not be suitable for investors who are not comfortable with often substantial day-to-day volatility.

National Oilwell Varco conducts operations in many countries, with a major portion of its total
revenue coming from international markets. As such, the company is exposed to risks associated
with doing business abroad. Such risks include embargoes and/or expropriation of assets, exchange
rate risks, terrorism and political/civil sentiment, etc.

Grant Prideco has historically been a major supplier to the domestic onshore drilling market; the
outlook for which has softened due to natural gas weak fundamentals. National Oilwell Varco s
acquisition of Grant Prideco has, therefore, increased its exposure to this potentially weak market.

National Oilwell Varco relies on its ability to develop and acquire essential products and technologies
that drive its operational performance and growth. If their technologies and/or products become
obsolete, or they cannot bring them to market in a timely and competitive manner, they may face
severe operational and financial dilemmas.
RECENT NEWS
Second Quarter 2014 Results Announcement

National Oilwell Varco plans to release its second quarter 2014 results on Jul 29, 2014 before the
opening bell.
Equity Research NOV | Page 4

National Oilwell Completes NOW Spin-Off

On May 30, 2014, National Oilwell Varco announced that the spin-off of its distribution business, NOW
Inc., has finally reached completion.
The new entity will debut in the NYSE today under the symbol DNOW. National Oilwell also stated that
Merrill A. Miller, Jr. will act as the new executive chairman of NOW.
As previously mentioned, for every four shares of NOV, one share of the new entity was issued to
National Oilwell stockholders as of May 22. Also, for any fractional share issue, the stockholder is
expected to receive a cash payment after the issue is sold in the open market.
National Oilwell s management stated that the spin-off was in accordance with its strategy to enhance
long-term value for shareholders. The separation of its distribution business should unlock value for the
company.
National Oilwell Ups Dividend by 77%

On May 15, 2014, National Oilwell Varco announced an increase in its quarterly cash dividend to $0.46
per share ($1.84 annualized), up almost 77% from $0.26.
National Oilwell s management stated that this increase reflects the company s confidence in its financial
condition and future cash flow growth. As of Mar 31, 2014, the company had $3.7 billion in cash.
Management believes that this strong cash flow position enabled it to declare the latest increase in
payout.
Notably, this is the second major dividend hike by the company. Last year, National Oilwell had doubled
its payout to $0.26. Such increases, if continued, would make National Oilwell a lucrative choice for value
investors.
VALUATION
National Oilwell Varco remains better positioned to navigate the uncertain environment than many of its
peers, given its strong balance sheet, backlog of over $16 billion, leading market position and technology
innovation. Furthermore, we believe that the company s competitive position has received a boost
following the Robbins & Myers acquisition, which has expanded the scale and scope of National Oilwell
Varco s solutions to oil and gas customers worldwide.
However, shares of the company are fairly valued at current levels, considering the sensitivity of National
Oilwell Varco s business to gas/oil price volatility, as well as exploration and production (E&P) spending
patterns, costs, geo-political risks, competition and the advent of new technologies.
These factors are reflected in our continued Neutral recommendation on National Oilwell Varco shares.
National Oilwell Varco s current trailing 12-month earnings multiple is 14.9X, compared with the 28.0X
industry average and 18.1X for the S&P 500. Over the last five years, National Oilwell Varco s shares
have traded in a range of 7.5X to 19.9X trailing 12-month earnings. As of now, the stock is trading at a
discount to its peer group, based on forward earnings estimates.
Equity Research NOV | Page 5

Our $88 price objective reflects a 2014 P/E multiple of 14.6x, which is within historical trading ranges.
Key Indicators

P/E
F1
P/E
F2
Est. 5-Yr

EPS Gr%
P/CF
(TTM)
P/E
(TTM)
P/E
5-Yr
High
(TTM)
P/E
5-Yr
Low
(TTM)
National Oilwell Varco, Inc. (NOV) 13.9 12.5 12.0 11.5 14.9 19.9 7.5

Industry Average 21.5 20.4 16.3 13.4 28.0 78.4 14.6
S&P 500 16.9 15.8 10.7 14.8 18.1 27.7 12.0

EnerNorth Industries Inc. (ENYNF)

PEDEVCO Corp. (PED)

26.3

Weatherford International Ltd. (WFT) 20.2 12.8 18.0 9.2 38.2 210.5 12.9
Technip ADS (TKPPY) 17.0 12.0 14.7 10.8 18.0 51.5 13.7
TTM is trailing 12 months; F1 is 2014 and F2 is 2015, CF is operating cash flow

P/B
Last
Qtr.
P/B
5-Yr High
P/B
5-Yr Low
ROE
(TTM)
D/E
Last Qtr.
Div Yield
Last Qtr.
EV/EBITDA
(TTM)
National Oilwell
Varco, Inc. (NOV) 1.6 2.1 0.9 11.0 0.1 2.2 8.4

Industry Average
2.1 2.1 2.1 8.0 0.3 0.6 10.1
S&P 500
4.7 9.8 3.2 23.1

0.0

Equity Research NOV | Page 6

Earnings Surprise and Estimate Revision History

Equity Research NOV | Page 7


DISCLOSURES & DEFINITIONS
The analysts contributing to this report do not hold any shares of NOV. The EPS and revenue forecasts are the Zacks Consensus
estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal
views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly,
related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this
report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to
accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet
the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an
offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a
position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the
securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to
twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve
months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The
current distribution of Zacks Ratings is as follows on the 1103 companies covered: Outperform - 15.7%, Neutral - 78.8%, Underperform

4.8%.
Data is as of midnight on the business day immediately prior to this publication.
Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in
earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model
assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks
Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a
company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of
investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In
determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each
stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5
th
group has the highest
values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the
second, third, and fourth groups of stocks, respectively.