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Global large-cap energy equipment maker National Oilwell Varco Inc. (NOV - Analyst Report) reported better-than-expected first quarter 2012 results on April 25 with both revenue and earnings per share improving year over year.

We cover below the results of the recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.

First Quarter Recap

The quarter’s earnings per share (excluding transaction costs) came in at $1.44, comfortably above the Zacks Consensus Estimate of $1.39 and the year-ago adjusted profit of $1.00.

Quarterly revenue rose 36.8% year over year – from $3,146.0 million to $4,303.0 million – but was marginally below our projection of $4,311.0 million.

(Read our full coverage on this earnings report: NOV profit rises on robust activity)

Agreement of Analysts

Looking at the estimates’ revision trend, it becomes clear that the majority of analysts project a pessimistic outlook for National Oilwell Varco’s second quarter results.

Of the total 17 analysts covering the stock, 5 have raised their estimates and 7 have moved in the opposite direction over the last 30 days.

For fiscal 2012, 8 analysts (out of 19 covering the stock) have upped their estimates, while 7 analysts went for downward revisions. However, over the last 7 days, no earnings estimate revision was witnessed.

The estimate revisions for the upcoming quarter and full-year 2012 indicate the analysts’ sentiment based on the company’s superior drilling fleet, healthy financial profile and attractive acquisitions, offset by weak oil and natural gas fundamentals and international operational disturbances.

Magnitude of Estimate Revisions

Reflecting the influence from analysts’ earnings revision, in the last 30 days, the Zacks Consensus Estimate for the second quarter dropped by a penny to $1.42. For the past seven days, the estimate for the quarter remained static.

For the full year, the earnings estimate moved up to $5.97 from $5.94, over the last 30 days. For the last one week, the estimate remained unaltered.

Earnings Surprise

With respect to earnings surprise, National Oilwell Varco showed a positive trend in the last 4 quarters. The company recorded a minimum surprise of 3.60% in the first quarter of 2012 to the maximum of 12.9% in the second quarter of 2011. On average, the earnings surprise was a positive 7.39%. Based on the current flow, we expect the company to come up with healthy results in the upcoming quarters.

Our Recommendation

We are maintaining our Neutral recommendation on National Oilwell Varco shares, as we see limited upside over the near term.

We believe that the company remains better positioned to navigate the uncertain environment than many of its peers, given its strong balance sheet, backlog of over $10 billion, leading market position and technological innovation. Furthermore, National Oilwell Varco’s competitive position has received a boost from the recent acquisitions, which will solidify its geographical footprint as well as service and product offering and raise its earnings visibility.

However, the shares of the company are fairly valued at current levels, considering the sensitivity of the business to gas/oil price volatility, as well as exploration and production spending patterns, costs, geo-political risks, competition and the advent of new technologies.

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 a short-term Hold rating.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

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