Houston, TX-based energy equipment manufacturer National Oilwell Varco Inc. (NOV) is set to release fourth-quarter 2014 financial results before the opening bell on Feb 3, 2015.
Last quarter, the company had delivered a 13.55% positive earnings surprise. Moreover, National Oilwell has posted an average positive earnings surprise of 9.38% over the last four quarters. Let’s see how things are shaping up for this announcement.
Factors Likely to Influence This Quarter
National Oilwell boasts a strong balance sheet with a debt to capitalization ratio of about 12%. The company’s financial strength and sound backlog makes it better suited than most of its peers to withstand this oil slump.
However, being an oilfield machinery and equipment manufacturer, National Oilwell’s business is positively correlated with crude price. The oil pricing environment was extremely weak during the entire fourth quarter and top energy companies have been cutting capex to deal with the situation. This in turn is expected to result in less work for the likes of National Oilwell.
Moreover, the company’s rig systems business – which is a major contributor to the earnings – is likely to get hampered by the slowdown in North American and international rig activity.
Earnings Whispers
Our proven model does not conclusively show that National Oilwell is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Earnings ESP which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -0.63%. The Most Accurate estimate for National Oilwell stands at $1.59 while the Zacks Consensus Estimate is pegged higher at $1.60.
Zacks Rank: National Oilwell carries a Zacks Rank #5 (Strong Sell) which complicates the forecasting power of ESP. As such, we caution investors against Sell-rated stocks (#4 and 5) going into the earnings announcements.
Stocks to Consider
Here are some companies from the same space that, according to our model, have the right combination of elements to post an earnings beat this quarter.
Seadrill Partners LLC (SDLP) has an Earnings ESP of +10.53% and a Zacks Rank #2 (Buy). The partnership is expected to release earnings on Feb 24.
Valero Energy Partners LP (VLP) has an Earnings ESP of +3.33% and a Zacks Rank #2. The company is slated to release earnings on Feb 5.
Tesoro Corp. (TSO) has an Earnings ESP of +1.40% and a Zacks Rank #2. The company is likely to release earnings on Feb 11.
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