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	10/25/2007 7:38:35 AM
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Orders set a new record; Reiterate Buy - Goldman Sachs - October 25, 2007 What's changed Reported EPS of $1.02 came in above our $0.95 and consensus of $0.94. Outperformance was driven by: (1) Rig Tech (+$0.02); (2) PSS (+$0.01); (3) lower tax rate (+$0.02); and (4) non-operating items (+$0.02). We raised our 2007/2008/2009 EPS forecasts by $0.11/$0.19/$0.04 to $3.72/$4.81/$5.49. Implications There is no change to our Buy rating on NOV shares. We are encouraged by 3Q2007’s record orders of $1.9 billion and backlog of $8 billion and believe that the long-term, secular fundamentals of the deepwater expansion and industry re-tooling stories are still intact. We expect 4Q07’s orders to remain strong ($1.6-$1.8 billion) as we estimate there are still 7 floater orders in the market where equipment has not yet been ordered. We also think that margins in Rig Technology still have upside, which is not fully reflected in consensus estimates. We are estimating Rig Technology margins improve 128 bps in 2008 to 25.3%. Valuation remains attractive even following 140% share price increase year-to-date. We are 10% above consensus EPS for 2008, but we think that consensus estimates will likely increase following this quarters strong performance. We do note that 3Q2007’s margin improvement slowed from the brisk pace seen the last six quarters, and investors may be concerned that the pace of margin improvement and earnings revisions may slow from what we have seen in the past – we believe this is one of biggest challenges for NOV shares. Valuation NOV is trading at a 2008E EV-DACF/P-E of 15.3X/12.9X, versus 17.6X/21.9X for FMC and 16.4X/19.5X for Cameron. We are raising our 12-month price target by $5.50 to $83 (=14.5X 2008E EV-DACF), which implies 13% upside. Key risks Key risks include capacity additions, a sustained decline in commodity prices, and the broader stock market in

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