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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 (41)	5/9/2008 6:56:12 AM
From: Dennis Roth	Read Replies (2) \| Respond to of 44

National Oilwell Varco (NOV): 1Q08 EPS in-line, but lowering estimates on weaker jackup demand - Goldman Sachs - May 01, 2008 What's changed NOV reported 1Q08 EPS of $1.11 vs. our estimate of $1.11 and consensus of $1.09. Operating income was 4% lower than expected (a $0.04 EPS miss), but this was offset by lower than expected below-the-line expenses and taxes. The shortfall was in the Rig Tech. segment, where revenues and operating income missed by 5% and 6%, due to timing delays in deliveries. Rig Tech. orders remained strong in 1Q08 at $2 bn vs. our $1.7 bn estimate. However, softness in jackup orders and higher than expected expenses cloud the short-term outlook. Accordingly, we lower 2008-2010 EPS estimates by 2%, 2%, and 2% to $4.82, $5.65 and $6.26. Implications We remain Neutral-rated on National Oilwell Varco. We are encouraged by the strong demand for deepwater rigs in 1Q and it appears 2Q is also off to a solid start. We also think management has a strong plan in place to integrate Grant Prideco and extract revenue and cost synergies. However, there are clearly some issues in the near-term that we think will keep the stock range bound: (1) Demand for jackups appears to be weakening, and while NOV hopes to offset that with an improving land rig environment, it will need significant land rig volumes to offset declines in jackup orders. (2) We see limited opportunities for operating margin improvement in Rig Technology with potentially slowing pricing power and rising costs. (3) We expect 2Q to be a relatively sloppy quarter due to the Grant Prideco integration, timing of Tubular’s sale to Vallourec, and the unclear timing of potential for debt paydowns. Valuation Our $79 12-month price target for NOV is based on 13.9X 2009 P/E, which is a discount to the peer group average of ~10%. Key risks (1) We see drill pipe and drill bit growth slower than in recent years. (2) A near-term pullback in crude prices could weigh on the shares.