National Oilwell Varco (NOV)

We selected National Oilwell Varco (NOV) from the following short list of Solomon Select candidates (screening results)  for the April feature:

Solomon short list 20130403

National Oilwell Varco (NOV): Business Model Analysis

Energy. Jeremy Grantham covered the subject well during his recent interview with Charlie Rose. Our selection of National Oilwell Varco (NOV) comes closely on the heels of Atwood Oceanics (ATW) a few months ago. The energy and energy-related stocks (i.e. Schlumberger) keep appearing at the top of our screens — and we’re wary to ignore this condition. EMC Corp (EMC) and Apple (AAPL) were honorable mention candidates and accounted for the other half of Grantham’s core message for long-term investors.

The company is the largest provider of equipment for oil and gas drilling.

The long-term outlook is bright for National Oilwell Varco.

From North Dakota to Pennsylvania to the Gulf waters off the coast of Brazil … the global need for energy is a compelling driver.

Growth, Profitability, Valuation

The Manifest Investing sales growth forecast for NOV is 10.5%. (Keep in mind that any historical data prior to 2009 is disrupted by the GrantPrideCo acquisition.) We’re using 12.8% for the projected net margin. The median P/E for the period 2006-2016 is 12.8×. We’re using 12x for the projected average P/E.

At the time of selection (4/3/2013), the stock price is $67.98, the projected annual return is 14%. The quality RANKING is 80 (Good) and the financial strength rating is 92 (A+).

The company has less long-term debt than cash assets and has an effective interest rate of 3.35%.

S&P views NOV as an attractive play on the need for new rig equipment, particularly for deepwater and unconventional natural gas projects.

Profitability Analysis (NOV)

Projected Average P/E Ratio

Equity Analysis Guide (NOV) (Spreadsheet version)


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