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Global large-cap energy equipment maker National Oilwell Varco Inc. (NOV - Analyst Report) is scheduled to report its first quarter 2012 results on Wednesday April 25, 2012 before the start of trading.

The Zacks Consensus Estimate for the to-be-reported quarter is a profit of $1.39 per share (with an upside potential of 2.16%) on revenues of $4,311.0 million. In the year-ago quarter, National Oilwell Varco recorded a gain of $1.00 per share, while sales came in at $3,146.0 million.

Fourth Quarter Recap

National Oilwell Varco’s fourth-quarter 2011 results came in strong, helped by robust activity levels across all business segments and benefits from the Ameron acquisition.

Earnings per share (excluding transaction charges) came in at $1.37, comfortably above the Zacks Consensus Estimate of $1.30 and the year-ago profit of $1.05. Quarterly revenue rose 34.3% year over year – from $3,172.0 million to $4,259.0 million – and was 6.4% above our projection.

(Read our full coverage on this earnings report: National Oilwell Beats Overall).

Points to Ponder for First Quarter

The growth in global energy demand will continue to boost drilling activity, with the employment of technology to find and recover oil/gas resources. As such, opportunities for oilfield services company like National Oilwell Varco will also improve, as it captures the economic benefit of this trend. Supported by strong consistency in its earnings/cash flows, attractive fundamentals and a positive outlook, we remain optimistic about the firm’s near-term prospects.

The company – one of the largest manufacturers of drilling equipment in the world – has a large installed base of rigs worldwide that provides for a steady recurring revenue stream through demand for maintenance, parts and other expendable products.

However, we remain worried by natural gas’ weak fundamentals. The glut in domestic gas supplies still exists, with storage levels remaining significantly above their five-year average.

This will continue to weigh on natural gas prices in the near-to-medium term that may ultimately make shale drilling (drilling for natural gas trapped within dense sedimentary rock formations, or shale formations) too expensive to continue. As a result, demand for the sophisticated rig technologies (like those supplied by National Oilwell Varco) may wane, adversely affecting the company’s operating results.

Agreement of Analysts

As a result of the above-mentioned factors, there has been mixed reactions from the analysts regarding National Oilwell Varco’s outlook. In particular, we see a notable number of estimate revisions over the past 30 days.

Out of the 19 analysts covering the stock, 2 have revised their estimates downward for the first quarter of 2012, with the same number going in the opposite direction.

Magnitude of Estimate Revisions

As a result of analysts revising estimates both ways over the past 30 days, the Zacks Consensus Estimate for the quarter has remained static at $1.39 per share.

Surprise History

The company has a history of positive earnings surprises, surpassing the Zacks Consensus Estimate in three of the last 4 quarters. National Oilwell Varco has performed consistently during this period with its average earnings surprise being 6.24%. This implies that the company has beaten the Zacks Consensus Estimate by 6.24% over the last four quarters.

As such, we will not be surprised if National Oilwell Varco reports better-than-expected results yet again, as it is one of the least affected companies from the natural gas drilling slowdown. This is because the Houston, Texas-based firm is not as exposed to domestic onshore natural gas drilling as some of its peers are.

Rating & Recommendation

National Oilwell Varco, which ranks ahead of Cameron International Corp. (CAM - Analyst Report) as the biggest U.S. maker of oilfield equipment, is currently a Zacks #3 Rank (Hold) stock, implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months. We are also maintaining our long-term Neutral recommendation on the stock.

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