Sell Sell Sell Sell: National Oilwell Varco Inc

July 16, 2017
NYSE: NOV
NATIONAL OILWELL VARCO INC

BUY HOLD SELL
SELL
RATING SINCE 02/04/2016
A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F
Annual Dividend Rate Annual Dividend Yield Beta Market Capitalization 52-Week Range Price as of 7/13/2017
$0.20 0.59% 0.99 $12.7 Billion $29.79-$43.63 $33.42
Sector: Energy Sub-Industry: Oil & Gas Equipment & Services Source: S&P
Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years
NOV BUSINESS DESCRIPTION
National Oilwell Varco, Inc. designs, manufactures, 53
and sells equipment and components used in oil 50
and gas drilling, completion, and production 48
operations; and provides oilfield services to the
45
upstream oil and gas industry worldwide.
43
STOCK PERFORMANCE (%) 40
3 Mo. 1 Yr. 3 Yr (Ann) 38
Price Change -11.38 0.11 -26.09
35
GROWTH (%) 33
Last Qtr 12 Mo. 3 Yr CAGR 30
Revenues -20.47 -43.90 -29.76 28
Net Income -2.52 -101.58 NA Rating History
EPS 0.00 -98.76 NA HOLD SELL
RETURN ON EQUITY (%) Volume in Millions

75
NOV Ind Avg S&P 500 50
Q1 2017 -17.34 -8.78 13.16
25
Q1 2016 -7.32 -0.20 11.83
0
Q1 2015 11.61 44.52 13.71 2015 2016 2017
COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History
P/E COMPARISON
RECOMMENDATION
We rate NATIONAL OILWELL VARCO INC (NOV) a SELL. This is driven by multiple weaknesses, which we
believe should have a greater impact than any strengths, and could make it more difficult for investors to
achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen
in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins and
weak operating cash flow.
HIGHLIGHTS
n/m 93.51 24.41 The company, on the basis of change in net income from the same quarter one year ago, has significantly
underperformed when compared to that of the S&P 500 and the Energy Equipment & Services industry. The
NOV Ind Avg S&P 500
net income has decreased by 2.5% when compared to the same quarter one year ago, dropping from -$119.00
million to -$122.00 million.
EPS ANALYSIS¹ ($)
Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This
is a signal of major weakness within the corporation. Compared to other companies in the Energy Equipment
Q1 0.76
Q2 0.74
Q3 0.41
Q4 -4.06
Q3 -3.62
& Services industry and the overall market on the basis of return on equity, NATIONAL OILWELL VARCO INC
Q1 -0.32
Q1 -0.32
Q2 -0.58
underperformed against that of the industry average and is significantly less than that of the S&P 500.
Q4 -1.90
The gross profit margin for NATIONAL OILWELL VARCO INC is rather low; currently it is at 23.61%. It has
decreased from the same quarter the previous year. Along with this, the net profit margin of -7.00% is
significantly below that of the industry average.
2015 2016 2017 Net operating cash flow has significantly decreased to $111.00 million or 82.12% when compared to the same
NA = not available NM = not meaningful
quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's
growth is significantly lower.
1 Compustat fiscal year convention is used for all fundamental
data items.
In its most recent trading session, NOV has closed at a price level that was not very different from its closing
price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors.
Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward
opportunity to compensate for the risks, despite the fact that it rose over the past year.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy Report Date: July 16, 2017 PAGE 1
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved.
July 16, 2017
NYSE: NOV

Sector: Energy Oil & Gas Equipment & Services Source: S&P
$0.20 0.59% 0.99 $12.7 Billion $29.79-$43.63 $33.42
PEER GROUP ANALYSIS INDUSTRY ANALYSIS

REVENUE GROWTH AND EBITDA MARGIN*
The Energy Equipment & Services industry comprises firms that do everything from providing information on
oilfields, to the actual drilling of wells, to logistical and other specialized support services. Some firms offer a
30%
SLCA wide range of services, while others specialize, most notably in contract drilling. The energy industry is
FA
cyclical and mature - its fortunes are directly tied to the general economic activity that drives energy
VO
demand. While the Equipment & Services companies tend to rely more on supply management and cost
RA
BL
containment than technological progress for growth, innovation is not absent - new seismic and surveying
E
technologies, drilling equipment and techniques are continually developed.
The stocks of companies in the industry, as measured by the Philadelphia Oil Services Sector Index (OSX)
SLB have been some of the best- and worst-performing in the market in the recent past. Record high energy
Revenue Growth (TTM)
CLB prices have moderated on weaker global demand reducing the call for exploration and drilling in expensive
RES
HAL locations by the major oil and gas companies, which contract with the service firms to perform the work.
OII Improved company fundamentals continue to be achieved through cost containment and better worldwide
UN
MDR TS
FA
WFT fleet management. The combination of higher spending plans by the major producers and tightening capacity
VO
-50%
would mean elevated profits for the Equipment & Services industry in the longer term. However, without a
RA
DRQ
B
commitment to building capacity, demand could eventually catch up with supply. This is how companies of
LE
NOV
6% 22% the Energy Equipment & Services industry could benefit in the longer term. The biggest operational risk is that
EBITDA Margin (TTM) depressed energy prices lead to under-investment. This could negatively impact the industry’s outlook, and
Companies with higher EBITDA margins and with it share prices.
revenue growth rates are outperforming companies
with lower EBITDA margins and revenue growth The largest players in the contract drilling space are Transocean Inc. (RIG), Nabors Industries Ltd. (NBR),
rates. Companies for this scatter plot have a market Noble Corp. (NE), and Diamond Offshore Drilling Inc. (DO). When analyzing these companies, it is important to
capitalization between $1.9 Billion and $92.4 Billion. gauge the day-rates they command (a function of supply and demand), and the size, age and management of
Companies with NA or NM values do not appear. their fleets. The largest diversified players are Schlumberger Ltd. (SLB), Halliburton Co. (HAL), Baker Hughes
Inc. (BHI), and Weatherford International (WFT). In analyzing these more diversified firms, one should know
*EBITDA – Earnings Before Interest, Taxes, Depreciation and
Amortization. which activities are covered and how well management performs in terms of economic returns.
REVENUE GROWTH AND EARNINGS YIELD Along with industry information published by the companies themselves (e.g. Baker Hughes’ rig count data),
there are specialized services that compile data on the so-called “oil patch”, such as Spears & Associates
30%
and Platts. Additionally, the US Department of Energy publishes current statistics and analysis, and the
SLCA International Energy Agency offers a comprehensive and rich analysis, complete with forecasts and data.
FA
VO
These are mainly macro decision support tools, however. We believe that a full analysis needs to also rely on
RA
company-level fundamentals.
BL
E
PEER GROUP: Energy Equipment & Services

Recent Market Price/ Net Sales Net Income
SLB
Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M)
Revenue Growth (TTM)
CLB RES NOV NATIONAL OILWELL VARCO IN 33.42 12,701 NM 6,803.00 -2,415.00
HAL MDR
SLB SCHLUMBERGER LTD 66.49 92,386 NM 28,184.00 -1,909.00
UN
TS OII
FA
WFT CLB CORE LABORATORIES NV 103.81 4,587 68.75 598.90 66.47

VO
-50%
DRQ RES RPC INC 20.69 4,506 NM 838.00 -105.10

RA
B
LE
NOV WFT WEATHERFORD INTL PLC 4.13 4,071 NM 5,550.00 -3,342.00

-90% 10%
HAL HALLIBURTON CO 43.77 37,987 NM 15,968.00 -3,383.00
Earnings Yield (TTM)
SLCA U S SILICA HOLDINGS INC 33.09 2,684 NM 681.91 -27.53
Companies that exhibit both a high earnings yield OII OCEANEERING INTERNATIONAL 22.85 2,245 NM 2,109.44 -8.05
and high revenue growth are generally more
MDR MCDERMOTT INTL INC 7.55 2,143 35.95 2,426.38 58.21
attractive than companies with low revenue growth
and low earnings yield. Companies for this scatter TS TENARIS SA 32.42 19,137 180.11 4,190.20 242.26
plot have revenue growth rates between -43.9% and DRQ DRIL-QUIP INC 49.80 1,884 33.20 491.40 56.55
21.4%. Companies with NA or NM values do not The peer group comparison is based on Major Oil & Gas Equipment & Services companies of comparable size.
appear.
July 16, 2017
NYSE: NOV

$0.20 0.59% 0.99 $12.7 Billion $29.79-$43.63 $33.42
COMPANY DESCRIPTION STOCK-AT-A-GLANCE

National Oilwell Varco, Inc. designs, manufactures, and Below is a summary of the major fundamental and technical factors we consider when determining our
sells equipment and components used in oil and gas overall recommendation of NOV shares. It is provided in order to give you a deeper understanding of our
drilling, completion, and production operations; and rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is
provides oilfield services to the upstream oil and gas important to note, however, that these factors only tell part of the story. To gain an even more comprehensive
industry worldwide. It operates through four segments: understanding of our stance on the stock, these factors must be assessed in combination with the stock’s
Rig Systems, Rig Aftermarket, Wellbore Technologies, valuation. Please refer to our Valuation section on page 5 for further information.
and Completion & Production Solutions. The Rig Systems
segment offers land rigs; offshore drilling equipment FACTOR SCORE
packages; and drilling rig components. This segment
provides substructures, derricks, and masts; cranes; pipe Growth out of 5 stars 0.5
lifting, racking, rotating, and assembly systems; fluid Measures the growth of both the company's income statement and weak strong
transfer technologies, such as mud pumps; pressure cash flow. On this factor, NOV has a growth score better than virtually
control equipment; power transmission systems; and rig none of the stocks we rate
instrumentation and control systems. The Rig
Aftermarket segment offers spare parts; and repair and
rental services, as well as technical support, field and
Total Return out of 5 stars 1.0
first well support, field engineering, and customer Measures the historical price movement of the stock. The stock weak strong
training services. The Wellbore Technologies segment performance of this company has beaten 10% of the companies we
designs, manufactures, rents, and sells various cover.
equipment and technologies. This segment also provides
solids control and waste management equipment and Efficiency out of 5 stars 1.0
services, drilling fluids, power generation equipment, Measures the strength and historic growth of a company's return on weak strong
drill and wired pipes, instruments, measuring and invested capital. The company has generated more income per dollar of
monitoring equipment, downhole and fishing tools, hole capital than 10% of the companies we review.
openers, and drill bits, as well as drilling optimization
and automation, tubular inspection, repair and coating,
rope access inspection, and instrumentation services.
Price volatility out of 5 stars 1.5
The Completion and Production Solutions segment offers Measures the volatility of the company's stock price historically. The weak strong
pressure pumping trucks, blenders, sanders, hydration stock is less volatile than 20% of the stocks we monitor.
units, injection units, flowlines, manifolds, and
wellheads; well intervention tools; onshore production, Solvency out of 5 stars 2.5
including composite pipes, surface transfer and Measures the solvency of the company based on several ratios. The weak strong
progressive cavity pumps, reciprocating pumps, pressure company is more solvent than 40% of the companies we analyze.
vessels, and artificial lift systems; and offshore
production comprising floating production systems, and Income out of 5 stars 3.0
subsea production technologies. The company was
Measures dividend yield and payouts to shareholders. The company's weak strong
founded in 1862 and is based in Houston, Texas.
dividend is higher than 50% of the companies we track.
7909 Parkwood Circle Drive THESTREET RATINGS RESEARCH METHODOLOGY
Houston, TX 77036
USA TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both
Phone: 713-346-7500 price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to
Fax: 713-375-3994 perform against a general benchmark of the equities market and interest rates. While our model is
http://www.natoil.com quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include
expected equities market returns, future interest rates, implied industry outlook and forecasted company
earnings. Objective elements include volatility of past operating revenues, financial strength, and company
cash flows.
Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown
as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of
acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings
growth; and the financial strength of the underlying company as compared to its stock's valuation as
compared to projected earnings growth; and the financial strength of the underlying company as compared
to its stock's performance. These and many more derived observations are then combined, ranked, weighted,
and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of
selecting stocks.
July 16, 2017
NYSE: NOV

$0.20 0.59% 0.99 $12.7 Billion $29.79-$43.63 $33.42
Consensus EPS Estimates² ($) FINANCIAL ANALYSIS

IBES consensus estimates are provided by Thomson Financial NATIONAL OILWELL VARCO INC's gross profit margin for the first quarter of its fiscal year 2017 has
decreased when compared to the same period a year ago. Sales and net income have dropped,
underperforming the average competitor within its industry. NATIONAL OILWELL VARCO INC has average
liquidity. Currently, the Quick Ratio is 1.21 which shows that technically this company has the ability to cover
short-term cash needs. The company's liquidity has increased from the same period last year.
0.71 E
During the same period, stockholders' equity ("net worth") has decreased by 14.88% from the same quarter
-0.40 E
last year. Together, the key liquidity measurements indicate that it is relatively unlikely that the company will
-0.15
face financial difficulties in the near future.
Q2 FY17 2017(E) 2018(E)
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the
next 12-months. To learn more visit www.TheStreetRatings.com.
INCOME STATEMENT
Q1 FY17 Q1 FY16
Net Sales ($mil) 1,741.00 2,189.00
EBITDA ($mil) 105.00 127.00
EBIT ($mil) -70.00 -48.00
Net Income ($mil) -122.00 -119.00
BALANCE SHEET
Q1 FY17 Q1 FY16
Cash & Equiv. ($mil) 1,479.00 1,759.00
Total Assets ($mil) 20,904.00 24,754.00
Total Debt ($mil) 3,213.00 3,379.00
Equity ($mil) 13,921.00 16,355.00
PROFITABILITY
Q1 FY17 Q1 FY16
Gross Profit Margin 23.61% 25.58%
EBITDA Margin 6.03% 5.80%
Operating Margin -4.02% -2.19%
Sales Turnover 0.33 0.49
Return on Assets -11.55% -4.83%
Return on Equity -17.34% -7.32%
DEBT
Q1 FY17 Q1 FY16
Current Ratio 2.72 2.93
Debt/Capital 0.19 0.17
Interest Expense 25.00 25.00
Interest Coverage -2.80 -1.92
SHARE DATA
Q1 FY17 Q1 FY16
Shares outstanding (mil) 380 377
Div / share 0.05 0.46
EPS -0.32 -0.32
Book value / share 36.63 43.37
Institutional Own % NA NA
Avg Daily Volume 3,321,155 3,693,426
2 Sum of quarterly figures may not match annual estimates due to
use of median consensus estimates.
July 16, 2017
NYSE: NOV

$0.20 0.59% 0.99 $12.7 Billion $29.79-$43.63 $33.42
RATINGS HISTORY VALUATION

Our rating for NATIONAL OILWELL VARCO INC has SELL. This stock’s P/E ratio is negative, making its value useless in the assessment of premium or discount
not changed since 2/4/2016. As of 7/13/2017, the valuation, only displaying that the company has negative earnings per share. For additional comparison, its
stock was trading at a price of $33.42 which is price-to-book ratio of 0.91 indicates a significant discount versus the S&P 500 average of 3.04 and a
23.4% below its 52-week high of $43.63 and 12.2% significant discount versus the industry average of 2.74. The price-to-sales ratio is below the S&P 500
above its 52-week low of $29.79. average and is well below the industry average, indicating a discount. After reviewing these and other key
valuation criteria, NATIONAL OILWELL VARCO INC proves to trade at a discount to investment alternatives
2 Year Chart within the industry.
$45
HOLD: $45.70
SELL: $28.58
$40 Price/Earnings 1 2 3 4 5 Price/CashFlow 1 2 3 4 5

premium discount premium discount
$35 NOV NM Peers 93.51 NOV 28.31 Peers 22.36
• Neutral. The absence of a valid P/E ratio happens • Premium. The P/CF ratio, a stock’s price divided by
$30 when a stock can not be valued on the basis of a the company's cash flow from operations, is useful
negative stream of earnings. for comparing companies with different capital
2015 2016 • NOV's P/E is negative making this valuation requirements or financing structures.
measure meaningless. • NOV is trading at a significant premium to its peers.
MOST RECENT RATINGS CHANGES

Price/Projected Earnings 1 2 3 4 5 Price to Earnings/Growth 1 2 3 4 5
premium discount premium discount
Date Price Action From To NOV 47.07 Peers 47.38 NOV NA Peers 0.27
2/4/16 $28.58 Downgrade Hold Sell • Neutral. The absence of a valid price-to-projected • Neutral. The PEG ratio is the stock’s P/E divided by
7/13/15 $45.70 No Change Hold Hold earnings ratio happens when a stock can not be the consensus estimate of long-term earnings
Price reflects the closing price as of the date listed, if available valued on the basis of a negative expected future growth. Faster growth can justify higher price
earnings. multiples.
• NOV's ratio is negative making this valuation • Ratio not available.
RATINGS DEFINITIONS & measure meaningless.
DISTRIBUTION OF THESTREET RATINGS
(as of 7/13/2017) Price/Book 1 2 3 4 5 Earnings Growth 1 2 3 4 5
premium discount lower higher
43.81% Buy - We believe that this stock has the NOV 0.91 Peers 2.74 NOV -98.76 Peers -75.74
opportunity to appreciate and produce a total return of • Discount. A lower price-to-book ratio makes a • Lower. Elevated earnings growth rates can lead to
more than 10% over the next 12 months. stock more attractive to investors seeking stocks capital appreciation and justify higher
with lower market values per dollar of equity on the price-to-earnings ratios.
30.69% Hold - We do not believe this stock offers balance sheet. • However, NOV is expected to significantly trail its
conclusive evidence to warrant the purchase or sale of • NOV is trading at a significant discount to its peers. peers on the basis of its earnings growth rate.
shares at this time and that its likelihood of positive total
return is roughly in balance with the risk of loss. Price/Sales 1 2 3 4 5 Sales Growth 1 2 3 4 5
premium discount lower higher
NOV 1.87 Peers 2.87 NOV -43.90 Peers -20.41
25.50% Sell - We believe that this stock is likely to
decline by more than 10% over the next 12 months, with • Discount. In the absence of P/E and P/B multiples, • Lower. A sales growth rate that trails the industry
the risk involved too great to compensate for any the price-to-sales ratio can display the value implies that a company is losing market share.
possible returns. investors are placing on each dollar of sales. • NOV significantly trails its peers on the basis of
• NOV is trading at a significant discount to its sales growth
industry on this measurement.
TheStreet Ratings
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July 16, 2017

NATIONAL OILWELL VARCO INC

RETURN ON EQUITY (%) Volume in Millions

NATIONAL OILWELL VARCO INC

PEER GROUP ANALYSIS INDUSTRY ANALYSIS

technologies, drilling equipment and techniques are continually developed.

PEER GROUP: Energy Equipment & Services

WFT CLB CORE LABORATORIES NV 103.81 4,587 68.75 598.90 66.47

DRQ RES RPC INC 20.69 4,506 NM 838.00 -105.10

NOV WFT WEATHERFORD INTL PLC 4.13 4,071 NM 5,550.00 -3,342.00

NATIONAL OILWELL VARCO INC

COMPANY DESCRIPTION STOCK-AT-A-GLANCE

NATIONAL OILWELL VARCO INC

Consensus EPS Estimates² ($) FINANCIAL ANALYSIS

NATIONAL OILWELL VARCO INC

RATINGS HISTORY VALUATION

$40 Price/Earnings 1 2 3 4 5 Price/CashFlow 1 2 3 4 5

MOST RECENT RATINGS CHANGES

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