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Is a Beat Likely for National Oilwell (NOV) in Q3 Earnings?

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National Oilwell Varco, Inc. (NOV - Free Report) is set to release third-quarter 2020 earnings results on Oct 26, after the market closes.

The current Zacks Consensus Estimate is pegged at a loss of 9 cents per share for the to-be-reported quarter and the same for revenues stands at $1.38 billion.

Let’s delve into the factors that might have impacted the company’s performance in the September quarter.

Factors at Play

National Oilwell’s cost-reduction efforts have been impressive. Its cash outflows reflecting capital expenditure saw a steady decline as the oil service firm reined in its spending levels. The company projects to generate around $625 million worth of annualized savings while realizing a sizeable sum from the suspension of dividend payment. All these strategic moves are expected to have driven third-quarter earnings and cash flows higher.

The domestic oil producers are unlikely to increase their spending anytime soon considering the coronavirus pandemic’s adverse impact on global energy demand. In response to this market instability, National Oilwell is likely to have sustained its disciplined approach to capital spending as well as maintained a better efficiency level during the third quarter.

On the flip side, National Oilwell’s Rig Technologies and Wellbore Technologies segments are likely to have underperformed in the third quarter. The Zacks Consensus Estimate for National Oilwell’s third-quarter revenues from the Rig Technologies segment is pegged at $451 million, suggesting a 30.5% decline from $649 million reported in the corresponding quarter of 2019. Consequently, the Zacks Consensus Estimate for the company's third-quarter revenues from the Wellbore Technologies segment is pegged at $364 million, indicating a 54.1% drop from the year-ago quarter’s reported figure of $793 million.

Moreover, the backlog orders in the Completion & Production Solutions segment are likely to have decreased in the third quarter amid the coronavirus pandemic, resulting in weak crude price and reduced drilling rig activities. Further, the prevalent bleak economic scenario is expected to have aggravated the already deteriorating conditions in the U.S. completion markets.

The Zacks Consensus Estimate for third-quarter backlog orders from the Completion & Production units is pegged at $221 million, indicating a 48.7% decline from the year-earlier quarter’s reported figure of $431 million.

What Does Our Model Say?

Our proven model does not conclusively predict an earnings beat for National Oilwell this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: National Oilwell has an Earnings ESP of -42.68%.

Zacks Rank: National Oilwell carries a Zacks Rank #3, currently.

Highlights of Q2 Earnings & Surprise History

In second-quarter 2020, National Oilwell reported an adjusted loss of 7 cents per share, narrower than the Zacks Consensus Estimate of a loss of 11 cents. Better-than-expected revenues from the Completion & Production Solutions segment led to this outperformance. However, the bottom line was wider than the year-ago loss of 4 cents due to softness in the Rig Technologies and the Wellbore Technologies unit.

Total revenues of $1.50 billion also lagged the Zacks Consensus Estimate of $1.54 billion and also dipped 29.8% from the year-ago number of $2.13 billion.

As far as the earnings surprise track is concerned, this Houston, TX-based company’s bottom line missed the Zacks Consensus Estimate in two of the trailing four quarters and beat the same in the remaining two, the average negative surprise being 163.10%. This is depicted in the graph below:

Stocks to Consider

While earnings outperformance looks uncertain for National Oilwell, here are some firms worth considering from the energy space on the basis of our model, which shows that these have the perfect combination of ingredients to deliver a beat this reporting cycle:

Parsley Energy, Inc. has an Earnings ESP of +65.19% and is a #3 Ranked player, currently. The firm is scheduled to release earnings results on Oct 28.

Oceaneering International, Inc. (OII - Free Report) has an Earnings ESP of +33.91% and a Zacks Rank of 3, currently. The company is scheduled to release earnings results on Oct 28. You can see the complete list of today’s Zacks #1 Rank stocks here.

Concho Resources Inc. has an Earnings ESP of +10.28% and is Zacks #3 Ranked, currently. The firm is scheduled to release earnings results on Oct 28.

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