Can National Oilwell Varco Continue to Move to the Upside?

With shares of National Oilwell Varco (NYSE:NOV) trading around $82, is NOV an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

National Oilwell Varco provides equipment and components for oil and gas drilling and production; oilfield services; and supply chain integration services to the upstream oil and gas industry worldwide. Its Rig Technology segment offers offshore and onshore drilling rigs; derricks; pipe lifting, racking, rotating, and assembly systems; rig instrumentation and turret mooring systems; blowout preventers; coiled tubing equipment and pressure pumping units; well workover rigs; wireline winches and trucks; cranes; flexible pipe; and other products for floating production, storage, and offloading vessels, and other offshore vessels and terminals. The companys Petroleum Services and Supplies segment provides consumable goods and services to drill, complete, remediate, and workover oil and gas wells; and service drill pipe, tubing, casing, flowlines; and other oilfield tubular goods.

National Oilwell Varco announced that it would begin to explore the possibility of spinning off its distribution business from the rest of its operations. This could add value to the company if the split is accomplished in a tax-efficient manner. The split is expected to be completed sometime in the first half of 2014, pending approval by the relevant parties.

T = Technicals on the Stock Chart Are Strong

National Oilwell Varco stock has been surging higher in recent quarters. The stock is currently trading near highs and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, National Oilwell Varco is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

NOV

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of National Oilwell Varco options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

National Oilwell Varco Options

19.77%

6%

3%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

December Options

Flat

Average

January Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on National Oilwell Varco’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for National Oilwell Varco look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

4.20%

-12.68%

-17.61%

15.03%

Revenue Growth (Y-O-Y)

8.84%

18.31%

23.33%

33.48%

Earnings Reaction

4.53%

-2.44%

-1.32%

-3.88%

National Oilwell Varco has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about National Oilwell Varco’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has National Oilwell Varco stock done relative to its peers, Forum Energy Technologies  (NYSE:FET), Baker Hughes (NYSE:BHI), Tesco (NASDAQ:TESO), and sector?

National Oilwell Varco

Forum Energy Technologies

Baker Hughes

Tesco

Sector

Year-to-Date Return

21.35%

14.18%

42.90%

64.27%

36.67%

National Oilwell Varco has been an average performer, year-to-date.

Conclusion

National Oilwell Varco provides equipment and components for oil and gas drilling and production; oilfield services; and supply chain integration services to the upstream oil and gas industry worldwide. The company announced that it would begin to explore the possibility of spinning off its distribution business from the rest of its operations. The stock has been surging higher in recent quarters and is currently trading near highs. Over the last four quarters, earnings have been mixed while revenue figures have been rising, which has left investors with conflicting feelings about earnings announcements. Relative to its peers and sector, National Oilwell Varco has been an average performer year-to-date. Look for National Oilwell Varco to OUTPERFORM.

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