What Challenges Does National Oilwell Varco Face before Recovery?
National Oilwell Varco’s operating cash flows
In this article, we’ll analyze how National Oilwell Varco’s (NOV) operating cash flows have trended over the past few quarters. We’ll also discuss how its free cash flow (or FCF) was affected given its capital expenditure (capex).
National Oilwell Varco’s cash from operating activities (or CFO) fell 17% in 4Q15 compared to 4Q14. However, it improved significantly over 3Q15. NOV generated $614 million CFO in 4Q15. Despite the company’s lower revenues in the past year, better working capital management led to higher CFO.
National Oilwell Varco’s free cash flow
NOV’s capex nearly halved in the past year until 4Q15. Lower capex nearly offset CFO’s shrinkage, and in effect FCF fell marginally in the past year. In 4Q15, NOV’s FCF was $493 million, compared to ~$499 million a year ago. This was an improvement over 3Q15’s FCF. National Oilwell Varco’s FCF has been positive in 11 of the past 12 quarters.
CARBO Ceramics (CRR), National Oilwell Varco’s smaller-market-cap peer, generated a -$9 million FCF in 4Q15, while C&J Energy Services’ (CJES) FCF was -$24 million in 4Q15. National Oilwell Varco makes up 0.95% of the iShares Select Dividend ETF (DVY), but for investors looking for exposure to the energy sector, energy accounts for 9.3% of DVY. NOV also makes up 0.14% of the Vanguard High Dividend Yield ETF (VYM).
National Oilwell Varco’s capex plans and acquisitions
Despite lower capex, National Oilwell Varco made seven acquisitions for a total of $86 million in 2015. Through these acquisitions, it enhanced its presence in Saudi Arabia and brought in new composite technology along with a WellSite Services offering in Asia. The company plans to add new facilities in Saudi Arabia, Abu Dhabi, Russia, and West Texas.
Next, we’ll discuss National Oilwell Varco’s dividends and dividend yields.
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