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Analyst Blog

Shares of National Oilwell Varco Inc. (NOV - Analyst Report) hit a 52-week high of $82.69 on Jun 27, 2014. In fact, the Houston, TX-based global large-cap energy equipment maker has seen its stock price climb some 16.0% since the beginning of the year.

Why the Bullishness?

National Oilwell 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 recurring revenue stream through demand for maintenance, parts and other expendable products.

Moreover, the pricing environment for West Texas Intermediate crude oil is strong as crude has been trading above $100 per barrel since the first half of May 2014. The high crude price has been favorable for oil exploration and production companies which in turn create demand for oil drilling equipment makers like National Oilwell.

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

The company recently completed the spin-off of its distribution business. We believe that the separation of the distribution operation is in accordance with National Oilwell’s strategy to enhance long-term value for shareholders.

Zacks Rank & Stock Picks

With National Oilwell’s shares trading at a 52-week high, any upside from here may be limited, as suggested by its Zacks Rank #3 (Hold).

Meanwhile, one can look at better-ranked players in the same industry like Matrix Service Co. (MTRX - Snapshot Report), Weatherford International plc (WFT - Analyst Report) and Cameron International Corp. (CAM - Analyst Report). Matrix Service Company and Weatherford International sport a Zacks Rank #1 (Strong Buy), while Cameron International carries a Zacks Rank #2 (Buy).

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