NATIONAL - OILWELL INC. (NOI) - undervalued/takeover ? Message Board

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Gold/Mining/Energy : NATIONAL - OILWELL INC. (NOI) - undervalued/takeover ?

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From: Dennis Roth	7/26/2007 8:03:37 AM
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Newbuilds fuel order reacceleration; Raising estimates, price target July 26, 2007 Goldman Sachs What's changed Reported EPS of $1.79 came in well above our $1.55 and consensus of $1.54. Outperformance was driven primarily by higher than expected margins in the Rig Technology division, which was 24.2% vs. our 22.3% estimate and 220 bps above 1Q07 level. We raised our 2007/2008/2009 EPS forecasts by $0.91/$1.54/$1.84 to $7.22/$9.24/$10.90. Implications We reiterate our Buy rating for National Oilwell Varco (NOV) shares. For the third quarter in a row, the magnitude of the positive EPS surprise should be a catalyst for a round of EPS revisions. At the same time, orders for Rig Technology have reaccelerated further extending visibility and reassuring investors as to the strength of the upcycle. We estimate that 2008 EPS estimates need to increase by approximately 11% just by keeping margins flat at 2Q07 level. We think that over the coming months the compounded impact of EPS revisions and multiple expansion relative to peers should lead to outperformance for NOV shares, even after the recent share price appreciation. Valuation NOV is trading at a 2008 EV-DACF/P-E of 11.6x/13.4x, versus 15.0x/18.5x for FMC and 13.6x/16.5x for Cameron, which implies a discount of 23%/28% versus FMC and 15%/19% versus Cameron. We raised our 12-month price target by $21 to $134 from $113 (=12.5x 2008 EV/DACF) due to higher estimates and improved visibility, which implies 8% upside. Key risks Key risks to our thesis and price target include: (1) weakness in natural gas prices in the United States could potentially lead to a slowdown in E&P spending; (2) a slowdown in the economy could result in commodity weakness and potentially capex cuts; and (3) execution of large complex orders.

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