National Oilwell Varco qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only initial concern is the short dividend history while the company passes all of the Enterprising Investor’s requirements. Consequently, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of Baker Hughes Inc. (NYSE:BHI).
From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.88 in 2010 to an estimated $5.53 for 2014, an overall growth rate of around 8.55% annually. National Oilwell Varco’s growth in its EPSmg demonstrates a long-term trend in the company’s earnings, a sight that value investors love to see. Overall, EPSmg has grown in each of the last five years, and it should be expected that growth will continue into the future. This level of demonstrated growth outpaces the market’s implied estimate of 2.81% earnings growth.
The ModernGraham valuation is based on an estimate of growth of 6.41%. As a result, it is clear that the market’s current pricing of National Oilwell Varco may be low, and therefore the ModernGraham conclusion is the company appears to be undervalued.