National-Oilwell Varco’s (NOV) reputation as a good operator and the stock’s positive track record in the last five years hasn’t been enough to quell investors’ doubt about the company’s ability to maintain its order flow going forward, but Nigel Browne, Equity Research Analyst at Macquarie Capital, says this hesitation in unwarranted.
“I think that this discussion is unwarranted in the long term,” Browne said. “Every success, new oilfield or deepwater discovery that we find is going to lead to more orders for our capital equipment names like Cameron (CAM) and NOV, so despite the underperformance of NOV year to date, that’s the name that I continue to hold a ‘buy’ rating on.”
Browne looks at crude oil price and spending in seismic technology and data acquiring. He says NOV is poised to benefit from the increase in spending by E&P companies, as the more they look for oil, the more they need to spend on increasingly better equipment and services.
“Brent crude oil is currently sitting at around $115 per barrel, and WTI is sitting at $98 or so — as of this interview. That’s a really positive signal for a number of E&P companies to accelerate spending, which in turn will consume a lot more services,” Browne said. “This is a secular, thematic tailwind. You’re going to have approximately 78 new offshore rigs being deployed into the fleet in 2013 alone.”
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