1

Date: 02.18.2012

Analyst Name: Justin L. Jaena

CIF Stock Recommendation Report (Spring 2013)

Company Name and Ticker: National Oilwell Varco, Inc. (NOV)

Section (A) Summary

Recommendation Buy: Yes No Target Price: Stop-Loss Price:

Sector: Energy Industry: Oil and Gas Equipment and Services

Market Cap (in Billions): 29.6 Billion

# of Shrs. O/S (in Millions): 426.93 Million

Current Price: 68.92 52 WK Hi: 89.95 52 WK Low: 59.07

EBO Valuation:

Morningstar (MS) Fair Value Est.: 98

MS FV Uncertainty: Avg

MS Consider Buying: 68.6

MS Consider Selling: 132.3

EPS (TTM): 5.83 EPS (FY1): 5.96 EPS (FY2): 6.82 MS Star Rating: 4 Stars

Next Fiscal Yr. End ”Year”: 2013 “Month”: December

Last Fiscal Qtr. End: Less Than 8 WK: Y N

If Less Than 8 WK, next Earnings Ann. Date: 04.13.2013

Analyst Consensus Recommendation: 1.9

Forward P/E: 10.11 Mean LT Growth: 15.9%

PEG: 0.77 Beta: 1.69

% Inst. Ownership: 88.29%

Inst. Ownership- Net Buy: Y N

Short Interest Ratio: 1.4

Short as % of Float: 1%

Ratio Analysis Company Industry Sector

P/E (TTM) 11.88 16.22 12.38

P/S (TTM) 1.48 2.13 2.88

P/B (MRQ) 1.46 2.25 0.50

P/CF (TTM) 9.51 8.11 8.72

Dividend Yield 0.75 1.97 2.37

Total Debt/Equity (MRQ)

15.56 61.60 12.94

Net Profit Margin (TTM)

12.39 15.74 10.42

ROA (TTM) 8.71 7.28 2.92

2

ROE (TTM) 13.16 14.76 4.52

Investment Thesis NOV is a very well positioned company. Due to a standardization of equipment in the oil drilling and extraction industry and NOV’s adaptation to their standardization, their products are prominent in 90% of the world’s oil rigs. Drilling operations in the western world cannot even begin without products from NOV. Analysts forecast a growth in the offshore drilling industry in the next year which will be favorable for NOV. However a major portion of its revenue comes from land based drilling operations. Relative evaluation is favorable, showing an overall undervaluation in the company’s stock price. Institutional ownership showed a net increase in positions and an immaterial decrease of shares owned by institutions of 1.41%. Analyst recommendations remain at a bullish 1.90. NOV can very well show good returns and beat analyst estimates as they have done many times before. Though their future remains unconvincing. There are outstanding unfavorable analyst forecasts on the market such as a continued low level of drilling operations. In addition, NOV has many risks posed by their global operations. These factors, in combination with NOV’s volatility and high beta of 1.69, leaves the CIF unjustifiably vulnerable to heavy losses should this stock be taken into its possession. NOV also showed a gross overvaluation in its EBO analysis. The most disconcerting factor presented was NOV’s inability to outperform the sector or market in all given periods. As well as a death cross for the technical analysis. The CIF is better

Summary: Downward trending revisions to estimates, weak EBO analysis, business risks, uncertain market forecasts, and a lackluster history of outperforming the sector or market leaves the prospect of returns, doubtful. These different factors should leave the analyst unconvinced at best on whether to buy NOV.

Company Profile: National Oilwell Varco (NOV) founded in 1862, provides products and services for onshore and offshore oil drilling and extraction operations around the world. They operate through three segments which are Rig Technology, Petroleum Services and Supplies, and Distribution and Transmission. NOV products and services are present in 900 drilling operations around the world and 90% of the world’s oil rigs.

Fundamental Valuation: NOV shows an EBO valuation of 48.32 where a 3 year above normal growth period was chosen. The analysis shows a severe overvaluation of the stock price (68.92). Discount rate is high at 13.28% due to the stock having a high beta of 1.69.

Relative Valuation: Relative evaluation shows undervaluation in the three chosen most relevant metrics which are forward P/E, PEG, and P/B. The P/B metric’s implied price however was well over the 52 week high. The PEG implied price only undervalued NOV by 0.16 dollars.

Revenue and Earnings Estimates: Revenue and earnings estimates are shown to be increasing throughout time reflecting the company’s projected growth. However analyst’s estimates have been bearishly trending downwards.

Analyst Recommendations: Analyst recommendations show a mean recommendation of 1.90 which is good. However, analyst recommendations have steadily been trending towards more bearish sentiments.

3

off with the more stable performance of holding the ETF for the energy sector, and will most likely see better returns from it.

Institutional Ownership: Institutional ownership showed a net buy of 46. However there was a decrease of 1.41% of institutionally held shares. This amount is still small, with a net increase of positions institutional ownership shows an overall bullish indicator.

Short Interest: Short interest is favorable. NOV has shown a steady decrease in short interest from one year ago. Days to cover remain low in comparison to its competitors.

Stock Price Chart: NOV has been unable to outperform the market or sector in all periods. Also the technical analysis revealed a “death cross” for both periods presented.

Section (B) Company Profile (two pages maximum)

Company Summary

National Oilwell Varco (NOV) was founded in 1862. NOV does not engage in the extraction of

oil, rather providing the equipment and services necessary for other companies who engage in

this activity being a business to business company. This company “designs, constructs,

manufactures, and sells systems, components and products for oil and gas drilling and

production.” (Yahoo Finance). Further, they provide services necessary for the oil industry such

as supply chain integration. Operations are conducted across the world in over 900 locations

and 6 continents. NOV has a reputation for its cost effective, efficient, safe, and

environmentally friendly operations. (National Oilwell Varco, Yahoo Finance).

Business Model, Competition, Environment and Strategy

NOV operates through three segments of business, Rig Technology, Petroleum Services and

Supplies, and Distribution and Transmission. The Rig Technology segment provides and services

equipment needed for the, “drilling, completion, and servicing of oil and gas wells.” Such goods

and services include “offshore and onshore drilling rigs, derricks, pipe lifting, racking, rotating

and assembly systems, rig instrumentation systems…” Recently, operations in this segment

have been increased in the United States, Canada, Norway, the United Kingdom, Brazil, China,

Belarus, India, Turkey, the Netherlands, Singapore, and South Korea. This segment operates in a

highly competitive market. Competitors include Access Oil Tools; Aker Solutions AS; American

Block; Bomco; Canrig (a division of Nabors Industries); Cavins Oil Tools; Cameron; DenCon Oil

Tools; Forum Oilfield Technologies; General Electric; Hitec Drilling Products; Hong Hua;

4

Huisman; Global Energy Services; M&I Electric; Tesco Corporation; Stewart & Stevenson, Inc.;

Huntings, Ltd.; Vanoil; Parveen Industries; Soilmec; TTS Sense; Omron; Bentec; Blohm; Voss;

Liebher; Seatrax; McGregor; Rolls Royce and Weatherford International, Inc. (National Oilwell

Varco 10-K 2012)

Petroleum Services and Supplies is the segment that provides goods and services used in

drilling and extraction operations. These are more consumable goods and services such as “drill

pipe, wire drill pipe, transfer pumps, solids control systems, drilling motors, drilling fluids, drill

bits, reamers...” The demand for these products is dependent on the level of drilling activity in

the industry. Recently, operations in this segment have been increased in the United States,

Canada, the United Kingdom, Brazil, China, Kazakhstan, Mexico, Russia, Argentina, India,

Bolivia, the Netherlands, Singapore, Malaysia, Vietnam, Oman and the United Arab Emirates.

Competitors for this segment include EDO Corporation; ShawCor Ltd.; Schlumberger, Ltd.;

Frank’s International, Inc.; Baker Hughes Incorporated; Halliburton Company; Weatherford

International Ltd.; Patterson Tubular Services; Vallourec & Mannesmann; and Precision Tube (a

division of Tenaris). (National Oilwell Varco 10-K 2012)

The Distribution and Transmission segment provides “maintenance, repair and operating

supplies and spare parts to drill site and production locations worldwide”. This segment of

NOV’s business is a leading producer of “water transmission pipe and fabricated steel

products”. Recently, operations in this segment have increased in the United States, the United

Kingdom, Kazakhstan, Singapore, Russia, and Malaysia. Competitors in this segment include

Wilson Supply (a division of Schlumberger, Ltd.); CE Franklin; McJunkin Red Man; Edgen Murry

II, LP; Ferguson Enterprises, Inc. (a subsidiary of Wolseley, plc); WESCO International Inc.; KS

Energy Limited; Apex Distribution, Inc.; and a number of large regional or product specific

competitors. Competitors for Transmission include Northwestern Pipe Company and a number

of regional competitors for water pipelines. Vestas, Katana Summit, and Trinity are competitors

for wind towers. Valmont, Skycast and Stresscrete are competitors for pole products. (National

Oilwell Varco 10-K 2012)

In 2011 the Rig Technology revenues were $7788 Million accounting for 50.9% of total revenue.

Petroleum Services and Supplies revenues were $5654 Million, 36.92% of total revenue. Finally,

Distribution and Transmissions revenue was $1873 Million, 12.23% of total revenues. Based on

the sales destination of NOV’s products and services, the United States accounts for 37.17% of

revenues, 15.4% for South Korea, 6.23% for Canada, 4.92% for Singapore, 4.7% for Norway,

3.17% for the United Kingdom, and 28.41% for all other countries. The United States has

61.06% of the company’s long lived assets. (National Oilwell Varco 10-K 2012)

Currently, NOV claims to have various pending lawsuits on the horizon regarding commercial,

product liability, and employee matters. However these lawsuits are forecasted to have no

5

material effect on the company’s financial position. Recently in 2012, NOV made total

acquisitions of $2305 million including companies NKT Flexibles, Enerflow Industries, Wilson

Distribution Holdings, and CE Franklin. (National Oilwell Varco 10-K 2012)

Foreign currency exchange risk is the largest risk that NOV faces. Mainly it is dealt with

derivative securities and forward contracts. There are certain political and economic risks the

company must also deal with due to conducting business on a global scale. NOV also operates

in many countries where government policies give preference to the purchase of goods and

services to their own local companies. Political instability is a problem in some nations which

NOV operates, which could possibly impede operations. Factors which NOV states will

specifically influence their profitability include

the ability of the members of the Organization of Petroleum Exporting Countries, or

OPEC, to maintain price stability through voluntary production limits, the level of

production by non-OPEC countries and worldwide demand for oil and gas;

The level of production from known reserves;

cost of exploring for and producing oil and gas;

• level of drilling activity and drilling rig dayrates; • worldwide economic activity; • national government political requirements; • development of alternate energy sources; and

• environmental regulations.

(National Oilwell Varco 10-K and 10-Q)

Revenue and Earnings History

Revenues and Earnings Yearly

Year 2012 2011 2010

Revenues 21001 14658 12156

EPS 5.865 4.73 3.99

Revenues and Earnings Quarterly

6

Quarter 12.31.2012 9.30.2012 6.30.2012 3.31.2012

Revenues 5934 5579 4961 4527

EPS 1.568 1.44 1.424 1.433

Quarter 12.31.2011 9.30.2011 6.30.2011 3.31.2011

Revenues 4259 3740 3513 3146

EPS 1.36 1.26 1.14 0.97

Quarter 12.31.2010 9.30.2010 6.30.2010 3.31.2010

Revenues 3172 3011 2941 3032

EPS 1.05 0.97 0.96 1.01

*Note: Data was taken from financial statements provided by the United States Securities

and Exchange Commission website. May differ from Reuters.

Revenues and earnings per share have steadily been rising with each year. Quarterly revenue

growth has shown inclines as well. The only time revenue and earnings per share showed a

decrease was in the 2nd quarter of 2010. Overall, the company is showing good signs in revenue

growth with continued increases in revenue and earnings per share through time. In the most

recent earnings report the company beat estimates by 7.22%. During the 4th quarter, NOV saw

growth in all three of its business segments. They expect trouble in the future although offshore

drilling is growing rapidly which is a positive outlook for the company. (Zacks Equity Research

2013. Rubin 2013)

Section (C) Fundamental Valuation (EBO)

7

*Following values were used to calculate the discount rate:

Risk Free Rate (US Treasury Bonds 20 Year)=2.79%

Market Risk Premium=9%

Beta=1.69

Inputs (provide below input values used in your analysis)

EPS forecasts (FY1 & FY2): 5.96 and 6.82

Long-term growth rate: 15.9%

Book value /share (along with book value and number of shares outstanding):

Book value: 20239

# of shares outstanding: 426.93 Million

Book value / share: 47.41

Dividend payout ratio: 8.39

Next fiscal year end: December 31st 2013

Current fiscal month: February (2/12)

Target ROE: 15.53%

Output

Above normal growth period chosen: 3 Years

EBO valuation (Implied price from the spreadsheet):48.32

Sensitivity Analysis

EBO valuation would be (you can include more than one scenario in each of the following):

46.79 if changing above normal growth period to 2 Years

51.47 if changing growth rate from mean (consensus) to the highest estimate 23.6%

46.72 if changing growth rate from mean (consensus) to the lowest estimate 12%

60.32 if changing discount rate to 11%

48.32 if changing target ROE to 18.38% (Sector ROE)

A three year above normal growth rate was chosen as the company grows at 2% from the first

and second year then 3.26% from the second and third year. After this the company’s rate of

growth decreases. Also, a longer investment horizon was deemed unsuitable for the Cougar

Investment Fund. The EBO valuation obtained from the analysis is well below the current price

and 52-week low showing that this stock may very well be overvalued.

8

Section (D) Relative Valuation

Copy/paste your completed relative valuation spreadsheet here

Baker Hughes (BHI) provides about the same products to oil and gas industry. National Oilwell

Varco (NOV) provides a wide range of products and services. Baker Hughes provides many of

these as well though not all. They are engaged in different operations such as hole enlargement

and coring.

Haliburton (HAL) also offers a different set of products and services with some intersecting with

NOV. This competitor operates with two segments, Completion and Production, and Drilling

and Evaluation.

Schlumberger (SLB) is a much larger company that operates under three segments, Reservoir

Characterization, Drilling, and Production. Their Reservoir Characterization segment provides

information on drill sites, something that NOV does not do. The Drilling segment produces

different equipment needed for drilling and extraction operations, some similar to NOV.

Cameron (CAM) mainly engaged in producing flow equipment. They have a Drilling and

Production segment which directly competes with NOV by producing structural components for

drilling rigs.

NOV

Mean FY2

Earnings Estimate Forward Mean LT PEG P/B ROE Value P/S P/CF

Ticker Name Mkt Cap Current Price (next fiscal year) P/E Growth Rate (MRQ) 5 yr ave Ratio TTM TTM

1 BHI Baker Hughes Inc 20,579.42$ 45.82$ 4.26$ 10.76 9.64% 1.12 1.19 10.52% 0.11 0.98 7.26

2 HAL Haliburton 39,788.42$ 42.70$ 3.96$ 10.78 14.54% 0.74 2.51 21.77% 0.12 1.40 9.44

3 SLB Schlumberger 106,300.30$ 80.03$ 5.85$ 13.68 17.15% 0.80 3.06 18.63% 0.16 2.51 11.64

4 CAM Cameron 10,917.73$ 34.82$ 5.04$ 6.91 21.16% 0.33 2.86 15.06% 0.19 1.87 15.85

NOV National Oilwell Varco 29,598.94$ 68.92$ 6.82$ 10.11 13.16% 0.77 1.46 13.01% 0.11 1.48 9.51

Implied Price based on: P/E PEG P/B Value P/S P/CF

1 BHI Baker Hughes Inc $73.36 $100.14 $56.17 $69.47 $45.64 $52.61

2 HAL Haliburton $73.54 $66.56 $118.49 $70.81 $65.19 $68.41

3 SLB Schlumberger $93.30 $71.59 $144.45 $100.87 $116.88 $84.36

4 CAM Cameron $47.12 $29.30 $135.01 $116.63 $87.08 $114.87

High $93.30 $100.14 $144.45 $116.63 $116.88 $114.87

Low $47.12 $29.30 $56.17 $69.47 $45.64 $52.61

Median $73.45 $69.08 $126.75 $85.84 $76.14 $76.38

Cougar Investment Fund Relative Valuation Template

Please download and save this template to your own storage device

You only need to input values to ce lls highlighted in "ye llow"

The rest of the spreadsheet is calculated automatically

Please read "Stock Recommendation Guide lines" document carefully

9

The multiples provided range relatively the same. There are no multiples that should be

considered outliers. Schlumber is a fairly larger company in terms of market capitalization.

Mean long term growth rate ranges about the same. Baker Hughes has a small growth rate of

9.64%. Growth prospects are lower as BHI does not offer products related to offshore drilling

and this is where NOV expects to see a lot of growth in the coming year. Cameron has a high

growth rate of 21.16%. CAM produces many things for offshore drilling operations. While NOV

does as well, the majority of their products go to onshore drilling operations. CAM also has a

much higher price to cash flow ratio possibly due to their negative cash flows in 2011 and 2010.

Cash flow from 2012 equaled $286.9 Million while 2011 saw a negative cash flow of $933.6

million.

The implied prices derived from the competitors show that NOV is undervalued. Forward P/E

presents and implied price of 73.45 is well above the current price of 68.92. This is also above

the 52 week low of 59.07 and below the 52 week high of 89.95. From what is shown, the PEG

metric has the closest implied price median of 69.08, only a dollar more than the price now.

The median is within the 52 week high-low range. Price to book shows a gross evaluation of

126.75, well above the 52 week range. Value ratio is 85.84, which is close to the 52 week high.

Price to sales and price to cash flow are show similar values of 76.14 and 76.38 respectively.

Both well within the 52 week range.

Forward P/E, PEG, and P/B were deemed to be the most relevant valuation tools for the sector.

In a highly competitive industry which sees marginal returns, margins for the sector are

especially significant. NOV shows undervaluation in this metric. NOV’s forward P/E is similar to

that of HAL and BHI. SLB shows a slightly higher forward P/E of 13.68 compared to NOV’s 10.11

while CAM shows a lower forward P/E of 6.91.

PEG is important as growth is difficult to determine in a sector which has many competitors. A

more technical analysis of growth is needed. PEG values are similar for NOV and its competitors

except for BHI which has a much higher PEG, and CAM showing a lower PEG. CAM has the

highest growth rate though this stock has many signs of being overvalued.

Finally, being in such a high capital investment industry, P/B is very important. Most of NOV’s

competitors except for BHI show a higher P/B ratio which should be taken as a good thing. It

shows that NOV is less likely to be overvalued. However, the implied prices given by the P/B

metric show a median of 126.75 which is well above the 52 week high. Since this is outside the

range it should not be taken into account.

Section (E) Revenue and Earnings Estimates

HISTORICAL SURPRISES

10

Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD)

Estimates vs Actual Estimate Actual Difference Surprise %

SALES (in millions)

Quarter Ending Dec-12 5,302.31 5,685.00 82.69 7.22

Quarter Ending Sep-12 5,364.00 5,319.00 -45.00 -0.84

Quarter Ending Jun-12 4,423.95 4,734.00 310.05 7.01

Quarter Ending Mar-12 4,286.85 4,303.00 16.15 0.38

Quarter Ending Dec-11 4,031.74 4,259.00 227.26 5.64

Earnings (per share)

Quarter Ending Dec-12 1.44 1.49 0.05 3.47

Quarter Ending Sep-12 1.51 1.52 0.01 0.74

Quarter Ending Jun-12 1.40 1.46 0.06 4.39

Quarter Ending Mar-12 1.39 1.44 0.05 3.57

Quarter Ending Dec-11 1.30 1.37 0.07 5.52

NOV definitely has a pattern of surprising the market and by a large percentage. Last quarter

saw a surprise of 7.22%, beating earnings estimates. Another large surprise of 7.01% occurred

after the 2nd quarter of the year. Only one surprise was negative, the 3rd quarter of 2012 and

this was only by %0.84. The surprises were much more notable for revenues. This helps to

confirm that NOV is indeed a growing company which has recently been engaging in expanding

operations and making acquisitions. With many new acquisitions and a growing demand for

offshore drilling, large cash reserves of 1.7 billion, NOV is well positioned to beat earnings

estimates during the coming year.

11

CONSENSUS ESTIMATES ANALYSIS Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD)

# of Estimates Mean High Low 1 Year

Ago

SALES (in millions)

Quarter Ending Mar-13 24 5,386.19 5,533.82 5,320.00 4,845.43

Quarter Ending Jun-13 24 5,567.96 5,887.40 5,323.20 4,933.90

Year Ending Dec-13 28 22,651.40 23,821.90 21,377.80 19,507.30

Year Ending Dec-14 25 24,287.10 26,991.10 21,151.20 20,273.10

Earnings (per share)

Quarter Ending Mar-13 29 1.37 1.54 1.24 1.70

Quarter Ending Jun-13 29 1.44 1.60 1.29 1.76

Year Ending Dec-13 33 5.96 6.48 5.30 6.87

Year Ending Dec-14 31 6.82 7.50 5.50 7.56

LT Growth Rate (%) 5 15.90 23.60 12.00 18.40

# of Estimates

Mean High Low 1 Year

Ago

SALES (in millions)

High v. Mean % Difference

Low v. Mean % Difference

12

Quarter Ending Mar-13

24 5,386.19 5,533.82 5,320.00 4,845.43 2.74% -1.23%

Quarter Ending Jun-13

24 5,567.96 5,887.40 5,323.20 4,933.90 5.74% -4.40%

Year Ending Dec-13

28 22,651.40

23,821.90

21,377.80

19,507.30

5.17% -5.62%

Year Ending Dec-14

25 24,287.10

26,991.10

21,151.20

20,273.10

11.13% -12.91%

Earnings (per share)

Quarter Ending Mar-13

29 1.37 1.54 1.24 1.7 12.41% -9.49%

Quarter Ending Jun-13

29 1.44 1.6 1.29 1.76 11.11% -10.42%

Year Ending Dec-13

33 5.96 6.48 5.3 6.87 8.72% -11.07%

Year Ending Dec-14

31 6.82 7.5 5.5 7.56 9.97% -19.35%

LT Growth Rate (%)

5 15.9 23.6 12 18.4 48.43% -24.53%

The range of analyst estimates for quarterly revenue are not that significant. Yearly revenue

estimates range as much as $5839.9 Million between high and low estimates. Ranges for

earnings per share are small as well. The ranges for FY2 are much more divergent than FY1 for

both revenues and earnings. Only 5 analysts are providing the mean long term growth rate, far

less than the amount of analysts providing the other estimates the lowest being 24.

CONSENSUS ESTIMATES TREND

13

Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD)

Current 1 Week

Ago 1 Month

Ago 2 Month

Ago 1 Year

Ago

SALES (in millions)

Quarter Ending Mar-13 5,386.19 5,386.19 5,479.37 5,477.16 4,845.43

Quarter Ending Jun-13 5,567.96 5,567.96 5,641.75 5,648.89 4,933.90

Year Ending Dec-13 22,651.40 22,665.00 22,719.30 22,881.70 19,507.30

Year Ending Dec-14 24,287.10 24,357.80 24,657.90 24,819.80 20,273.10

Earnings (per share)

Quarter Ending Mar-13 1.37 1.37 1.51 1.52 1.70

Quarter Ending Jun-13 1.44 1.44 1.57 1.59 1.76

Quarter Ending Dec-13 5.96 5.97 6.48 6.58 6.87

Quarter Ending Dec-14 6.82 6.82 7.34 7.51 7.56

Consensus estimates of analysts are trending up in both revenue and earnings in terms of the

company’s future profitability. Although many analysts have been making decreasing revisions

in regards to revenue for the quarters ending March 2013, June 2013, and Year ending

December 2013 which is a bad sign. However, the year ending December 2014 has seen

increasing revisions though this is still far in the future and estimates can very well change in

that time. All estimates of earnings per share are showing decreasing revisions. The trend is

about the same for both FY1 and FY2.

14

ESTIMATES REVISIONS SUMMARY

Last Week Last 4 Weeks

Number Of Revisions: Up Down Up Down

Revenue

Quarter Ending Mar-13 0 0 7 9

Quarter Ending Jun-13 0 0 6 10

Year Ending Dec-13 0 1 9 16

Year Ending Dec-14 0 1 7 8

Earnings

Quarter Ending Mar-13 0 0 0 20

Quarter Ending Jun-13 0 0 1 18

Year Ending Dec-13 0 1 1 26

Year Ending Dec-14 0 0 2 21

The estimates revisions shows very little revisions in the past week. There have only been three

revisions, all down. One for revenues in the year ending December 2013, one for the year

ending December 2014, and one for earnings in the year ending December 2013. There have

been many revisions in the past 4 weeks, primarily downwards which is a bad sign for the

company. There have been a few up revisions, though they are vastly overshadowed by the

downgrading revisions.

15

While analyst estimates have been primarily revised downwards in the past four weeks, NOV

has shown a healthy history of being able to beat analyst estimates. They are well positioned in

the industry as rigs cannot be assembled in the western world without components from NOV.

90% of the oil rigs have NOV products present. The market is proving to be conducive to

growth. There is forecasted to be a much greater demand for offshore oil rigs. Land rigs are

seeing a change which will standardize the equipment used. NOV has shown a great capacity

for meeting the demands of standardization before with offshore oil rigs. Expansion includes

many acquisitions and even a merger with Robbins and Myers last year. Analysts believe this

growth is sustainable. However, NOV operates in a very competitive market. The new

standardization may not be centered around them, which is what the company is trying to do.

Threats include impairment charges due to possibly overpaying for their acquisitions. Finally,

drilling activity is forecasted to remain low which is something NOV relies on to sell its

consumables. There are many factors which could denote a good or bad year for NOV, however

analyst are justified in making their downward revisions. There is still good reason to believe

NOV will have a strong year, however analysts have most likely already anticipated this.

(Reuters, 2012. Ellis 2013.)

Section (F) Analysts’ Recommendations

ANALYST RECOMMENDATIONS AND REVISIONS

1-5 Linear Scale Current 1 Month

Ago 2 Month

Ago 3 Month

Ago

(1) BUY 10 13 12 14

(2) OUTPERFORM 14 12 13 13

(3) HOLD 7 5 4 2

(4) UNDERPERFORM 0 0 0 0

(5) SELL 0 0 0 0

No Opinion 0 0 0 0

Mean Rating 1.90 1.73 1.72 1.59

16

Revision

Date

Upgrade or

Downgrade

Current

Recommendation

Previous

Recommendation

Firm Last

Revision

2.04.2013 Down Hold Strong Buy Bern 1 year ago

*Only Revision Shown on resource given (cnbc.com/id/15839285)

NOTE: On a Five-point scale, Reuters assigns “1” to “Buy”, the most bullish recommendation,

and “5” to “Sell”, the most bearish recommendation. Some other online sites have opposite

scale, with their “1” being the most bearish and “5” being the most bullish recommendations.

Analysts give an overall buy recommendation. There are notable changes in that analysts are

steadily downgrading their recommendations giving a bearish sentiment. Recently there are

two new HOLD ratings, and 2 new outperform ratings, while BUY ratings decreased by 3 from 1

month ago. Analysts for the BUY recommendation are decreasing as the ratings converge on

OUTPERFORM. All ratings are either in the BUY, OUTPERFORM, or HOLD category which is a

good sign. Overall, NOV maintains a 1.90 average bullish recommendation which is consistent

with the Morningstar report.

17

Section (G) Institutional Ownership

Institutional ownership shows a net buy of 46, which is a bullish indicator. However there is a

net decrease in institutional ownership of shares of 1.41%. It is not a significant bearish

indicator as this is a small percentage. Institutional ownership is a material factor as it accounts

for 88.29% of the shares.

Section (H) Short Interest (two pages)

NOV Short Interest

Settlement Date Short Interest Average Daily # of

18

Settlement Date Short Interest Avg Daily Share Volume Days To Cover

1/31/2013 4,317,688 3,011,236 1.433859

1/15/2013 4,001,027 2,949,715 1.356411

12/31/2012 3,898,288 3,657,378 1.065870

12/14/2012 4,560,209 5,430,669 1.000000

11/30/2012 4,688,620 3,395,835 1.380697

11/15/2012 5,113,980 3,996,812 1.279515

10/31/2012 5,641,502 3,702,367 1.523755

10/15/2012 5,203,501 2,188,614 2.377533

9/28/2012 4,710,328 3,597,984 1.309158

9/14/2012 6,225,187 3,159,816 1.970111

8/31/2012 5,393,848 2,695,897 2.000762

8/15/2012 5,870,084 3,040,294 1.930762

7/31/2012 4,950,362 3,858,330 1.283032

7/13/2012 5,192,553 3,472,448 1.495358

6/29/2012 5,090,660 5,589,595 1.000000

6/15/2012 5,205,109 3,871,621 1.344426

5/31/2012 6,040,263 5,120,766 1.179562

5/15/2012 6,789,227 5,407,470 1.255527

4/30/2012 8,305,174 3,507,666 2.367721

4/13/2012 8,566,004 3,100,902 2.762423

3/30/2012 8,979,100 3,903,436 2.300307

3/15/2012 8,445,347 3,159,665 2.672862

2/29/2012 8,288,677 3,582,927 2.313381

2/15/2012 8,324,493 4,772,827 1.744143

Shares Volume Days to cover

19

Short Interest Table Cameron (CAM)

20

Short Interest table Baker Hughes Inc. (BHI)

21

Avg Vol Avg Vol Shares Float

(3 month) (10 day) Outstanding

4178310 3996220 426.93 Million 425.91 Million

Shares Short Short Ratio Short % of Float Shares Short (Most recent date) (Most recent date) (Most recent date) (2 weeks prior)

4.32 Million 1.4 1.00% 4 Million

There is no significant trend to NOV’s days to cover and it remains low. The two competitors

listed, BHI and CAM show much higher days to cover than NOV. Short interest has decreased

significantly over the past year. Baker shows no significant increases, while CAM’s short interest

peaked over 15 million shares for a few weeks. Shares short as % of Float remains low at 1%

giving a bullish indication.

Section (I) Stock Charts

A three months price chart

Copy/paste the “3 Mos.” stock chart here

22

A one year price chart

Copy/paste the “1 Yr” stock chart here

A five year price chart

Copy/paste the “5 Yrs.” stock chart here

23

Additional price chart

If you have other stock charts, feel free to copy/paste here

6 Month, Moving Average Chart

24

2 Year, Moving Average Chart

NOV’s performance has fluctuated greatly showing both large growth and large declines being a

highly volatile stock. It has remained steady over the past 5 years with large downwards and

upwards fluctuations throughout the 1 year and 3 month period. These graphs do well to

illustrate NOV’s high volatility and Beta of 1.69. What is most disconcerting about these charts

is that NOV has hardly been able to outperform its sector or market indicating that the CIF

would benefit from larger returns by sticking to holding ETF’s. Technical analysis with the

moving average shows NOV is currently past a “death cross” in both the 6 month and 2 year

periods showing a highly bearish forecast for its future.

25

Sources

National Oilwell Varco 10-K. Rep. no. D267762d10k.htm. N.p.: n.p., n.d. Securities and Exchange

Commission. Web. 18 Feb. 2013.

<http://www.sec.gov/Archives/edgar/data/1021860/000119312512074776/d267762d10k.htm>.

National Oilwell Varco 10-Q. Rep. no. d408798d10q.htm. N.p.: n.p., n.d. Securities and Exchange

Commission. Web. 18 Feb. 2013.

<http://www.sec.gov/Archives/edgar/data/1021860/000119312512074776/d267762d10k.htm>.

"Robbins & Myers, Inc. and National Oilwell Varco, Inc. Announce Merger Agreement at $60.00 per

Share in Cash." Reuters. Reuters, 09 Aug. 2012. Web. 17 Feb. 2013.

"National Oilwell Varco." Reuters. Reuters, n.d. Web. 18 Nov. 2013.

<http://www.reuters.com/finance/stocks/overview?symbol=NOV>.

"Baker Hughes." Reuters. Reuters, n.d. Web. 18 Nov. 2013.

<http://www.reuters.com/finance/stocks/overview?symbol=BHI>.

"Schlumberger." Reuters. Reuters, n.d. Web. 18 Nov. 2013.

<http://www.reuters.com/finance/stocks/financialHighlights?symbol=SLB.N>.

"Haliburton." Reuters. Reuters, n.d. Web. 18 Nov. 2013.

<http://www.reuters.com/finance/stocks/financialHighlights?symbol=HAL.N>.

"Cameron." Reuters. Reuters, n.d. Web. 18 Nov. 2013.

<http://www.reuters.com/finance/stocks/incomeStatement/detail?stmtType=CAS&perType=ANN&sym

bol=CAM.N>.

"NOV Short Interest." Nasdaq. Nasdaq, 15 Feb. 2013. Web. 18 Feb. 2013.

<http://www.nasdaq.com/symbol/nov/short-interest#.USN4IaWsh8E>.

"CAM Short Interest." Nasdaq. Nasdaq, 15 Feb. 2013. Web. 18 Feb. 2013.

<http://www.nasdaq.com/symbol/cam/short-interest#.USN4aaWsh8E>.

"BHI Short Interest." Nasdaq. Nasdaq, 15 Feb. 2013. Web. 18 Feb. 2013.

<http://www.nasdaq.com/symbol/bhi/short-interest#.USN4kaWsh8E>.

Ellis, Stephen. "National Oilwell Varco Remains at the Center of Several Major Industry

Trends." Morningstar. N.p., 11 Feb. 2013. Web. 17 Feb. 2013.

26

Zacks Equity Research. "Earnings Preview: National Oilwell Varco." - Zacks.com. Zacks, 31 Jan. 2013.

Web. 18 Feb. 2013. <http://www.zacks.com/stock/news/91739/earnings-preview-national-oilwell-

varco>.

"National Oilwell Varco." Yahoo! Finance. Yahoo, n.d. Web. 18 Feb. 2013.

<http://finance.yahoo.com/q?s=NOV>.

"Haliburton." Yahoo! Finance. Yahoo, n.d. Web. 18 Feb. 2013. <http://finance.yahoo.com/q?s=hal>.

"Baker Hughes." Yahoo! Finance. Yahoo, n.d. Web. 18 Feb. 2013. <http://finance.yahoo.com/q?s=bhi>.

"Sclumberger." Yahoo! Finance. Yahoo, n.d. Web. 18 Feb. 2013. <http://finance.yahoo.com/q?s=slb>.

"Cameron." Yahoo! Finance. Yahoo, n.d. Web. 18 Feb. 2013. <http://finance.yahoo.com/q?s=cam>.

"Event Calendar, Stock Upgrade and Downgrade Online Information - CNBC." CNBC.com. CNBC, n.d.

Web. 18 Feb. 2013. <http://www.cnbc.com/id/15906175>.

"National Oilwell Varco: Growing Company At A Discount." - Seeking Alpha. Seeking Alpha, 28 Dec. 2012.

Web. 19 Feb. 2013. <http://seekingalpha.com/article/1085991-national-oilwell-varco-growing-

company-at-a-discount?source=yahoo>.

Rubin, Ben F. "National Oilwell Varco 4th-Quarter Net Rises 16% on Distribution Growth."The Wall Street

Journal. The Wall Street Journal, 1 Feb. 2013. Web. 18 Feb. 2013. <http://online.wsj.com/article/BT-CO-

20130201-705313.html>.