The oil patch continues to be robust for the oil services companies. National Oilwell Varco, Inc. (NOV) saw double digit earnings and revenue growth in the second quarter. With the stock market sell off, this Zacks #1 Rank (strong buy) now has even more attractive valuations, with a forward P/E of just 13.6.
National Oilwell Varco provides mechanical components for land and offshore drilling rigs, complete land drilling and well servicing rigs, and other products used in oil and gas drilling.
Founded in 1841, the company also supplies chain services through its distribution service centers which are located near major drilling and production activity areas worldwide.
The company operates over 800 manufacturing, sales and service centers around the globe.
Expansion Continues
On July 27, National Oilwell Varco announced it would acquire Ameron International Corporation (AMN) in an all cash deal for $772 million. Ameron manufactures highly-engineered products and materials for the chemical, industrial, energy and transportation markets.
It produces fiberglass-composiste pipe for transporting oil, chemicals and corrosive fluids. It also provides water transmission lines and fabricated steel products like wind towers.
It has 25 manufacturing facilities.
The deal is expected to close by the fourth quarter of this year.
National Oilwell Varco Beat on the Second Quarter
On July 26, National Oilwell Varco reported its second quarter results and surprised on the Zacks Consensus Estimate for the third time in the last four quarters.
Earnings per share were $1.14 versus the consensus at just $1.01 for a 13% beat. This was 18% higher than the year ago quarter.
Revenue jumped 19% to $3.5 billion from the second quarter of 2010. All 3 segments saw revenue rise in the quarter with the Petroleum Services & Supplies segment leading the quarter with a 32% increase to $1.4 billion over the second quarter of 2010.
The Rig Technology segment also had a strong quarter with a revenue increase of 13% to $1.9 billion compared to a year ago.
The Distribution Services segment climbed 16% to $423 million from a year ago but margins were adversely affected by seasonal declines in Canada in the quarter.
The backlog for the Rig Technology’s capital equipment orders also jumped 26% to $7.7 billion. The company also booked $3 billion on new orders.
Zacks Consensus Estimates Jump
Given the beat on the quarter and the big backlog, analysts have been raising full year estimates.
18 estimates moved higher in the last month which pushed up the Zacks Consensus to $4.44 from $4.17 per share. This is expected earnings growth of 8.6%.
But analysts are even more bullish on 2012, as the Zacks Consensus Estimate rose to $5.66 from $5.28 after the earnings announcement. That is earnings growth of 27%.
Valuations Have Gotten Cheaper
Due to the market sell off, investors can now buy National Oilwell Varco on the cheap.
In addition to a P/E under 15, which usually indicates “value”, the company also has a price-to-book ratio of just 1.7 which is well under the value cut-off of 3.0.
Given the low P/E and the growth, National Oilwell Varco has a PEG ratio of 0.8. A PEG under 1.0 usually indicates a company is undervalued.
As an added bonus, National Oilwell Varco also rewards investors with a dividend of 0.7%.
If you’re looking for a play on increased drilling in the energy industry, National Oilwell Varco is an attractive value play.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.
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