National Oilwell (IL/A): Great story getting better, but relative valuation more attractive elsewhere - Goldman Sachs - October 28, 2005
NOV recurring 3Q2005 EPS ex-hurricane of $0.57 ($0.53 ex-charges) beat our $0.55 estimate with operating income 4% higher driven by stronger PSS + Distribution. Capital equipment - the key driver of the NOV story - was slightly below expectations, but NOV posted a 25% sequential increase in orders, or double our expectations. The outlook for further increases in orders remains strong with deepwater newbuild activity accelerating. We are raising 2006-07 EPS estimates to $3.25/ $4.20 from $2.88/ $3.72 given our higher E&P spending forecast (+20% vs +15%) and sharp NOV backlog increase. We are lowering our 2005 EPS estimate to $2.02 from $2.04 due to lower reported 3Q EPS. We continue to view NOV as one of the best stories in the oil patch, but fair value of $72 implies 21% upside vs 30%+ for BHI, SLB, SII, DO, RIG = OP/A. NOV is +67% YTD vs +30% for the OSX.
Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Terry Darling; Jerry Revich.
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