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Actionable news in NOV: NATIONAL OILWELL VARCO Inc,

The National-Oilwell Varco Disappointment May Finally Be Over

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National-Oilwell, Inc. NYSE:NOV - The National-Oilwell Varco Disappointment May Finally Be Over

Morgan Stanley believes the negative catalysts underlying its bearish thesis on National-Oilwell Varco, Inc. NOV 5.48% have played out, and the firm has upgraded the stock from Underweight to Overweight. Analyst Ole Slorer believes the market should shift its focus to the company’s $4 EPS potential.

“We estimate that at the 2014 peak, EBIT from new offshore rigs was $1.1bn, or 25% of total & ~$2 of the $6.08 in EPS in 2014,” Slorer explains. “We thus see $2.50-3.00 as midcycle earnings by late 2018 and over $4 by 2020.”

Related Link: What's Goldman Saying About Oil Majors And Refiners?

The fact that National-Oilwell has underperformed its oil services peers but has exhausted its negative catalysts makes the stock a top contrarian pick in Slorer’s eyes. He sees a solid balance sheet and the potential for strong earnings momentum going forward.

Morgan Stanley predicts the stock could re-rate to 9X its 2018 EBITDA estimates of about $2 billion.

“We expect multiple expansion during the recovery driven by a change in mix away from backlog-heavy offshore rigs that typically commands a lower multiple, towards consumables and aftermarket segments, which should allow NOV’s recovery EV/EBITDA multiples to be closer to those of the service majors near 10x,” Soler notes.

Morgan Stanley now has a $45 price target for National-Oilwell.

Disclosure: the author holds no position in the stocks mentioned.

Apr 2016Morgan StanleyUpgradesUnderweightOverweight
Apr 2016BarclaysDowngradesOverweightEqual-weight
Apr 2016Morgan StanleyMaintainsUnderweight

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