Like other energy-related companies, National Oilwell Varco has seen its shares punished because of weak oil prices. And with the company due to report fourth-quarter and full-year results Tuesday, investors hoping for some reprieve need to look elsewhere. The bottom in oil prices and in National Oilwell stock may not be reached for some time.
National Oilwell Varco stock closed Friday at $54.43, up 2.2%, bouncing from a session low of $52.64, just missing its 52-week low of $52.14. Shares were gaining 39 cents, or 0.7%, to $54.82 early in Monday's session.But even with the gains on Friday and Monday, National Oilwell has lost more than 16% of its value year to date, against declines of 3.5% and 2.9% for the Dow Jones Industrial Average and the S&P 500, respectively.
All told, since reaching a 52-week high of $86.55 on Sept. 2, the Houston-based company has seen its value plummet almost 40%.
National Oilwell Varco specializes in equipment and components that are used in oil and gas drilling. And for the upstream oil and gas industry, National Oilwell Varco is one of the leaders in supply chain integration services.
As long as oil prices continue to decline, its business will suffer. Because of a glut of supply and the Organization of the Petroleum Exporting Countries' refusal to cut back on output, analysts fear oil prices may fall to $40 a barrel or less.In this environment, National Oilwell shares have become a falling knife. To protect themselves from further losses, investors should consider selling their shares or National Oilwell Varco or trimming positions ahead of Tuesday's results, especially because there is talk that its earnings will fail to meet expectations.
For the quarter ending in December, analysts expect National Oilwell to earn $1.60 per share, a 2.5% increase from a year earlier. Revenue is expected to be $5.71 billion, down 7.5% from a year earlier. For the full year, earnings are expected to be $6 per share, up 8.6% year over year, while full-year revenue is projected to decline more than 5% to $421.5 billion.
National Oilwell Varco, which competes with bigger names such as Halliburton (HAL) and Schlumberger (SLB) , reported third-quarter backlog of $14.3 billion, falling short of estimates by 3%. The company showed weakness in inbound orders, suggesting less predictable revenue. And this, too, will likely take a toll in its results on Tuesday.
To the extent National Oilwell can trim its 2015 budget to offset slumping prices without hurting its revenue too much, these shares, which have a consensus hold rating from analysts, may be fine in the long term, but there are too many risks here for new investors to try to time the bottom.