National-Oilwell Varco Inc Valuation – August 2016 $NOV

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how National-Oilwell Varco Inc (NOV) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): National Oilwell Varco, Inc. (NOV) is engaged in providing design, manufacture and sale of equipment and components used in oil and gas drilling, completion and production operations. The Company operates through four segments: Rig Systems, which makes and supports the capital equipment and integrated systems needed to drill oil and gas wells on land and offshore; Rig Aftermarket, which provides aftermarket products and services to support land and offshore rigs, and drilling rig components manufactured by the Company’s Rig Systems segment; Wellbore Technologies, which sells and rents solids control equipment, and provides solids control, waste management and drilling fluids services, and Completion & Production Solutions, which provides technologies for well completions and oil and gas production. The Company also provides oilfield services to the upstream oil and gas industry. The Company conducts operations in approximately 830 locations across the world.

NOV Chart

NOV data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NOV – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $12,899,566,370 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.12 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -82.51% Fail
6. Moderate PEmg Ratio PEmg < 20 28.25 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.78 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.12 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.52 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

NOV value chart August 2016

EPSmg $1.18
MG Growth Estimate -4.25%
MG Value $4.10
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $17.12
MG Value based on 0% Growth $10.04
Market Implied Growth Rate 9.87%
Current Price $33.35
% of Intrinsic Value 813.15%

National-Oilwell Varco, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.79 in 2012 to an estimated $1.18 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.87% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into National-Oilwell Varco, Inc. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.43 per share, for a yield of 4.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 28.25, which was below the industry average of 55.24, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $4.1.

National-Oilwell Varco, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

NOV charts August 2016

Net Current Asset Value (NCAV) $4.10
Graham Number $0.00
PEmg 28.25
Current Ratio 3.12
PB Ratio 0.78
Current Dividend $1.43
Dividend Yield 4.29%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $9,204,000,000
Total Current Liabilities $2,947,000,000
Long-Term Debt $3,268,000,000
Total Assets $23,784,000,000
Intangible Assets $10,695,000,000
Total Liabilities $7,666,000,000
Shares Outstanding (Diluted Average) 375,000,000

Earnings Per Share History

Next Fiscal Year Estimate -$1.70
Dec2015 -$1.99
Dec2014 $5.82
Dec2013 $5.44
Dec2012 $5.83
Dec2011 $4.70
Dec2010 $3.98
Dec2009 $3.52
Dec2008 $4.90
Dec2007 $3.76
Dec2006 $1.94
Dec2005 $0.91
Dec2004 $0.64
Dec2003 $0.45
Dec2002 $0.45
Dec2001 $0.64
Dec2000 $0.08
Dec1999 $0.02
Dec1998 $0.65
Dec1997 $0.49

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.18
Dec2015 $3.07
Dec2014 $5.45
Dec2013 $5.07
Dec2012 $4.79
Dec2011 $4.24
Dec2010 $3.88
Dec2009 $3.55
Dec2008 $3.19
Dec2007 $2.07
Dec2006 $1.10
Dec2005 $0.66
Dec2004 $0.51
Dec2003 $0.41
Dec2002 $0.38
Dec2001 $0.36
Dec2000 $0.23

Recommended Reading:

Other ModernGraham posts about the company

26 Best Stocks For Value Investors This Week – 2/6/16
National Oilwell Varco Inc Valuation – February 2016 Update $NOV
10 Low PE Stocks for the Enterprising Investor – February 2016
10 Low PE Stocks for the Enterprising Investor – January 2016
13 Best Stocks For Value Investors This Week – 10/17/15

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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