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Is National Oilwell's (NOV) GustoMSC Acquisition Beneficial?

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National Oilwell Varco, Inc. (NOV - Free Report) recently agreed to acquire a Dutch rig design and engineering company, GustoMSC. The deal is expected to enable Houston, TX-based National Oilwell to expand its equipment-providing business to the upstream companies. The financial details of the deal are yet to be disclosed.

Per Rystad Energy, an energy consultancy and data-providing firm, GustoMSC’s designs are present in 10% of the jackup fleet and 8% of the floater fleet, both of which are currently active globally. Hence, the acquisition strengthens equipment provider, National Oilwell’s hold in the offshore industry. Moreover, with the recent improvement in the oil-price environment, the deep-water energy sector is expected to bounce back, making National Oilwell’s move even more profitable in the coming days.

Additionally, the acquisition is expected to help the company enhance its jack up equipment, geophysical gear transporting skids and other vessels, with the services designed to broaden its portfolio. The move boosts National Oilwell’s supply chain and is considered as a vertical integration. Furthermore, along with providing offshore oil and gas services, GustoMSC also serves the wind markets.

Notably, in 2012, Parcom Capital, a private-equity firm from Netherlands, bought GustoMSC for around $185 million. National Oilwell’s strong balance sheet, with cash and cash equivalents of $1,236 million as of Mar 31, 2018 and a debt-to-capitalization ratio of 16.1% — much lower than the industry’s 63.4% — can support the acquisition.

Price Performance

National Oilwell has gained 27.1% in the past year compared with 9.3% growth of its industry.

Zacks Rank and Stocks to Consider

Currently, National Oilwell carries a Zacks Rank #3 (Hold).

Investors interested in the Energy sector can opt for some better-ranked stocks in the same space like Anadarko Petroleum Corporation (APC - Free Report) , Delek US Holdings, Inc. (DK - Free Report) and BP p.l.c. (BP - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Woodlands, TX-based Anadarko is an exploration and production company. For 2018, its bottom line is likely to be up 239.3%. In the last reported quarter, the company delivered a positive earnings surprise of 20.1%.

Brentwood, TN-based Delek is an energy company. The company’s top line for 2018 is anticipated to improve 39.2% year over year, while its bottom line is expected to increase 230.2%.

London-based BP is an integrated oil major. For 2018, its bottom line is likely to be up 67.6%. In the last four reported quarters, the company delivered an average positive earnings surprise of 29.6%.

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