KLR Cuts National-Oilwell Varco (NOV) Estimates After Contract Cancellations

KLR Group analyst, Darren Gacicia, reduced his estimates on National-Oilwell Varco (NYSE: NOV) below consensus driven by top line deceleration in the Rig Equipment business and an expectation for lower margins in the segment. However he leaves his target price unchanged at $52 as well as his Buy rating on the strength of its market leading franchises.

At the end of December, NOV announced the termination of seven drilling equipment package contracts with Estaleiro Atlantico Sul (EAS) that represented $1.1 billion in backlog. Although NOV reduced its backlog, it will not write down work in progress for the contract, as down payments and progress payments covered associated costs.

Although rig market consolidation does not bode well for orders through 2017, a potential for a recovery in North American and international upstream activity in 2016/2017 may benefit the Wellbore and Completion & Production segments (45%-50% of revenue).

The analyst, reduced his 2016 EPS to $1.19 from $1.41 and 2017 EPS to $1.81 from $1.87. EPS for 4Q/15 remains unchanged at $0.38.

For an analyst ratings summary and ratings history on National-Oilwell Varco click here. For more ratings news on National-Oilwell Varco click here.

Shares of National-Oilwell Varco closed at $33.62 yesterday.

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