Nat'l-Oilwell Varco with Upside

National Oilwell Varco Upside on Strong Backlog

Houston-based drilling equipment manufacturer National-Oilwell Varco’s (NOV) stock price has been going south since June 1, 2009. The oilfield machinery powerhouse has seen its common stock fall 26% since last month.

Although we expect that the pace of new capital equipment orders for the company will remain sluggish due to reduced exploration and development activity in the oil and gas industry, we believe that National-Oilwell Varco’s existing order backlog will support revenues for its Rig Technology segment, which accounts for more than half of its total sales. The current backlog of $9.6 billion amply cushions against the downturn, driving a fairly steady $1.3 billion in revenue per quarter.

Looking ahead, we believe that the likelihood of economic recovery in 2010 is strong, which will improve demand for National-Oilwell's products and services. Consequently, we think that the company offers substantial upside potential from the current price levels. We therefore maintain our Buy recommendation ahead of its second quarter results, expected on July 28. Along with Weatherford International (WFT), National-Oilwell remains one of our core large-cap oilfield service holdings.

National-Oilwell Varco 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.

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