Has National Oilwell Varco Bottomed? (NOV)

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National Oilwell Varco, Incorporated (NYSE: NOV) reported earnings this morning, and if you have followed stocks in the oil patch you are quite aware that the company has been far from immune to the sharp pullback in oil prices.  Excluding charges and disruptions, the oil rig maker and equipment giant posted $1.44 EPS rather than the First Call estimates of $1.30.  Even after items, it reported earnings of $1.32 Basic EPS and $1.31 Diluted EPS.

More important than any earnings announcement is the company’sbacklog.  It said that equipment orders for the company’s RigTechnology segment as of September 30 increased to $11.8 billion,compared to $10.8 billion at June 30, 2008. New orders during thequarter were $2.4 billion.

Here is where this story gets very interesting.  The company said thatits backlog for capital equipment continued to increase and said it wasa result of strong demand for its drilling equipment for internationaloffshore rigs.

Pete Miller, Chairman, President & CEO of National Oilwell Varco,gave some very strong remarks despite the emerging trend of oil CEO’sbeing less robust in times where oil has come back down to reasonablelevels.  He said, “Even given the disruptions caused by Hurricane Ike,we weathered the storm admirably and should deliver products delayed inthe last two weeks of the third quarter in the next two quarters. Wesecured a record level of new orders into backlog, with established andwell financed customers. While the worldwide financial problems andcredit disruptions indicate some near term uncertainty in our industry,our significant capital backlog, our market leading products andservices and our exceptionally strong balance sheet position ourCompany well to withstand near term weakness and prepare for theinevitable improvement in demand to continue rebuilding and expandingthe global oil and gas industry equipment and services capabilities."

What we find so interesting here is that this showsstabilization despite the cutting in half of oil prices.  We won’t goout on a limb and predict any major upswings as oil prices have beencut in half from what history will call "obviously unrealistic andridiculous speculative levels," but it is impressive how well thebusiness has held up so far.

Shares are back down to the levels not seen since early-2005.  We haveseen much data to illustrate that noone would be immune from the massive drop in oil prices. But the tone and results here are not as cautious as they are elsewhere.

NOV shares have traded from a 52-week high of $92.70 at the peak allthe way down to $20.16 in recent days.  Shares today are up 7% at$26.10 as traders are deciding to bottom fish in some of the key oilpatch names.  With shares down close to 70% and with a backlog likethis, you have to wonder if mommy was also thrown out with the baby andthe bath water. 

Stock prices and commodity canalways go lower and we have seen evidence of that over and over.Calling any absolute bottom in anything in the current market has been met with disappointment and has been a financially painful exercise.  But maybe we have finally seen thepoint where at least some share price stabilization can come about.

Jon C. Ogg
October 23, 2008