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Gold/Mining/Energy : NATIONAL - OILWELL INC. (NOI) - undervalued/takeover ? -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (40)	5/9/2008 6:53:20 AM
From: Dennis Roth	Read Replies (1) \| Respond to of 44

National Oilwell Varco (NOV): Risk-reward balanced in near-term; Reinstate with Neutral - Goldman Sachs - April 28, 2008 What's changed We have removed the Not Rated designation from National Oilwell Varco (NOV) shares and we have reinstated coverage with a Neutral rating and $79 price target. We believe the risk-reward is balanced at this stage given the high exposure to potentially slowing new offshore rig orders, offset by the accretive acquisition of Grant Prideco, high earnings visibility through 2009, and the attractiveness of a more balanced product portfolio. Our 2008-2010 EPS estimates are $4.91, $5.75, and $6.40. Implications National Oilwell Varco has been a huge beneficiary of the offshore rig newbuild cycle, which is now in its 4th year. With over 170 new jackups and floaters set to enter the market over the next 4 years - a 27% increase to the market – our greatest concern for NOV is that the robust pace of new rig orders could soon begin to moderate. What offsets this concern is that $9 bn Rig Technology backlog drives high-visibility 19% average EPS growth over 2008-2010 timeframe. We highlight the following investment positives for NOV: (1) Dominant position in its key business segment – Rig Technology, with 50% market share, (2) New rig orders could begin to slow from peak levels, but still remain solid for several quarters, and (3) The Grant Prideco acquisition provides early-cycle balance to NOV’s late-cycle rig equipment business. Valuation Our $79 12-month price target for NOV is based on 13.8X 2009 P/E, which is a discount to the peer group average of 10%. We believe a discount is warranted given that it is getting later in the offshore newbuild cycle. Key risks Key concerns include: (1) Demand for new jackup rigs appears to be slowing (2) We see drill pipe and drill bit growth slower than in recent years. (3) A near-term pullback in crude prices could weigh on the shares.