Initiating Coverage National Oilwell Varco Inc

5/26/2018 Initiating Coverage National Oilwell Varco Inc

INITIATING COVERAGE REPORT William C. Dunkelberg Owl FundApril 30, 2014

Michael Kollar: Lead [email protected] Berin: Associate [email protected]

Shady Botros: Associate [email protected]

COMPANY OVERVIEW

NOV is an oil & gas equipment & service company thatprovides a cornucopia of diversified and comprehensiveproducts to the upstream energy sector. NOVsthree revenuesegments are: Rig Technology (48.6% of FY2013 sales);Petroleum Services & Supplies (30%); and Distribution &Transmission (21.4%). NOV has 64,000 employees whooperate more than 800 manufacturing and sales centers across

the globe. NOV is truly diversified geographically with revenuegenerated from the United States (35% of FY2013 sales),Other (20.9%), South Korea (14.1%), Singapore (8.1%),Canada (6.1%), Norway (4.8%), China (4.4%), Brazil (3.5%),and the UK (3.1%).

INVESTMENT THESIS

While NOVs EV/EBITDA multiple historically trades at anaverage discount of 9.4% to the index of its peers on a three-year basis. This discount has recently expanded to ~20%because of: 1) Declining margins across its revenue segments;2) Investors awaiting the completion of the spin-off of NOVsDistribution & transmission segment; and 3) draconian marketreaction to its recent earnings announcement andaccompanying guidance for short-term decline in rigtechnology backlog, which sent shares down 7.4% on the day.This pull-back provides the Owl Fund with an attractive entrypoint to invest in NOV, the largest and most experiencedequipment provider to the Oil & Gas industry. NOVmaintains a wide economic moat derived through brand equity,economies of scale and scope across the energy sector valuechain, and a successful M&A track record. As an Equipment &Service provider, NOV earns its revenue free from directcommodity price volatility and possesses long-term industrytailwinds in global deepwater E&P spending and shale gasdevelopment. NOV will witness modest multiple expansion in

the short-term as the spin-off of its Distribution &Transmission segment focuses NOV into a higher marginbusiness overall and the company distributes cash raised toshareholders. NOV also expects to realize the first revenuesfrom its flexible plant in Brazil in 2Q2014 which had seenchallenges becoming operational. Based on theaforementioned catalysts, NOV provides exceptional value andopportunity for the Owl Fund. We rate the company a strongBuy with a price target of $92.73 indicating a 18.7% return.

Ener

gy

Oil&GasEquipment&Services

National Oilwell VarcoExchange: NYSETicker: NOV Target Price: $92.73 Current Price: $78.11

Sector OutperformRecommendation: BUY

All prices current at end of previous trading sess ions from date of

report. Data is sourced from local exchanges via CapIQ

Bloomberg and other vendors. The William C. Dunkelberg Ow

Fund does and seeks to do business with companies covered in its

research reports.

Key Statistics

Price Projected $92.73 52 wk High $84.71

Return 19% 52 wk Low $63.25

Shares O/S (mm) 429 Yield 1.30%

Market Cap (mm) $33,155 EV (mm) 32,711$

P/E 13.3 Beta 2.06

Date EPS NIYOY NI Surp Price

2Q2013 $ 1.33 -9% 0.1% -2.5%

3Q2013 $ 1.34 -12% 2.1% 4.5%

4Q2013 $ 1.56 5% 12.3% 1.9%

1Q2014 $ 1.40 9% 0.7% -7.4%

Earnings History

$-

$2.00

$4.00

$6.00

$8.00

2010 2011 2012 2013 2014 2015

Diluted EPS & Consensus

1Q 2Q 3Q 4Q Year

Period 2010 2011 2012 2013 2014 2015

1Q $ 1.10 $ 1.00 $ 1.44 $ 1.29 $ 1.40 $ 1.63

2Q $ 0.97 $ 1.14 $ 1.46 $ 1.33 $ 1.47 $ 1.67

3Q $ 0.97 $ 1.26 $ 1.52 $ 1.34 $ 1.57 $ 1.77

4Q $ 1.05 $ 1.37 $ 1.49 $ 1.56 $ 1.68 $ 1.86

Year $ 4.09 $ 4.77 $ 5.91 $ 5.52 $ 6.12 $ 6.93

Earnings Per Share ( $) for Fiscal Year Ending Dec.
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


Spring 2014

T h e W i l l i a m C . D u n k e l b e r g O w l F u n d P

CATALYSTS

Presently, NOV is in a transformational time in its history. Thecompany has been battling short-term headwinds while juggling therestructuring of its business into new reporting segments, integratingpast acquisitions, and completing a spin-off. Investors are ripe with

uncertainty, but with many growth prospects, industry-leadingmanagement, and long-term growth prospects, we feel there is nobetter time to enter into a position in this undervalued stock. Belowis a synopsis of catalysts which will drive NOV to its fair value.

Rig Technology Margin ExpansionNOVs rig technology segment is the highest operating marginsegment (24-25%) which includes both offshore and onshoreequipment. Margins, however, have been compressed by a storm offactors including: less favorable product mix, absence of learningeffect efficiency from the launch of new rig floor layouts, acongested supply chain from a bloated backlog, poor pricing withinthe backlog, and other related marginal cost increases. These factorscaused margins to compress precipitously from 26% in 2011, to

21.1% as of 1Q2014. While it has taken considerable time and effortto correct this downtrend, NOV will see steadily increasing marginsthrough the remainder of FY2014 to a level of ~24% by the exit ofFY2015. Key drivers to margin increase is the return to a morefavorable product mix thanks to returning onshore demand, analleviating backlog, fruition of past capacity expansions, and thereturn of learning effect.

Distribution Segment Spin-OffNOV announced the spin-off of 85% of its Distribution &Transmission segment which is expected to be $4.5 billion of thecurrent business. This spin-off will unlock value for shareholders ina multitude of ways.

Higher Margins Overall: By spinning off the lower margin(4.8% operating margin in FY2013) distribution segment, NOVwill realize immediate higher margins overall, aligning it moreclosely with the higher valuations of its pure equipmentmanufacturing peers.

Refocusing on Core Competencies: NOV believes thisbusiness has enough legs to run on its own and by focusing onits core equipment and services business it can realize financialand operational improvements more quickly.

M&A Activity / Cash Return: This spin-off will yieldimmediate cash flow to NOV which can be deployed to thebenefit of shareholders either through capital return or growth.NOVs Board of Directors believes investing in future returnsof the business is paramount which is indicative of NOVsacquisitive nature (27 acquisitions since 2009). Management andIR have both guided that NOV paused M&A activity after its$2.4B acquisition of Robbins & Myers in 2012 and has sincefully digested its integration. NOV is currently seeking newdeals which will differentiate its product offering or improve itscost structure. Concerning returns to shareholders, the companyfavors dividend increases over buybacks. NOV increased itsdividend 100% in May of 2013 to its present yield of 1.3%,representing a dividend payout ratio of merely 16.7%, leaving

ECONOMIC MOAT

Summary:NOV has a wide economic mo Brand Equity: NOV has been an ind

leader for over 140 years. Its name comm

significant brand name recognition and a

reputation. Its products serve as benchmar

other providers.

Depth of Installment Base: Due to Ndominant market share, it has many l

products out on the market which re

routine maintenance and workover. As

products are sold, NOV grows its recu

revenue base more than its smaller compet

Customers incur higher switching costs be

maintenance is contracted by NOV

purchase.

Scale: NOV has a dominant market sharits products can be found in 90% of the w

deepwater rigs. This scale was achieved w

NOV moved the drilling industry to a

more standard rig designs. As NOV build

new design rigs, it will again realize lea

curve effects, similar to

RISKS

E&P Capital Spending: National International oil company spending

deepwater and unconventional shale impacts their spending on capital equipmen

Contract Driller Day Rates: Suppldemand forces in the contract drilling spac

a lagging impact on demand for NOV

technology segments, particularly in new bu

M&A Risk: Despite its track record of moefficiently through M&A processes, NOV

the risk of overpaying for future acquisitio

failing to integrate legacy infrastructure

timely fashion.

Commodity Price Volatility: Althindirectly affected by commodity price cha

NOV remains susceptible to major swings

commodity markets.


Spring 2014


NOV ample running room to distribute FCF to shareholders while also growing the business.

Brazil Flexibles Plant CompletionNOV made its largest capital expenditure ever in the building of a flexible plant in Brazil, which is expected to comeonline in 2Q2014. This new plant will add capacity to NOVs Petroleum Service & Supply segment, boosting revenueand margins. NOV is capitalizing on the explosion of drilling activity in South America, particulary in Brazil and

Argentina. The plants location in Brazil will allow NOV to get its flexible products to market faster, reduce shippingcosts, and be more responsive to shifting supply and demand forces in the area.

BUSINESS SEGMENTS

Rig technology: (48% of the revenue, 60.8% operating income)

This segment generated more than $11.7B in revenue for the FY 2013 which represents a 16% increase on a YOY scale.

The rig technology segment designs, manufactures, sells and services systems for the drilling, completion and servicing

of oil and gas wells. Most of the products result from a high-engineered work which automates productions. The

demand from this segment is mainly driven by the capital spending of the drilling contractors, oilfield service companies

and oil & gas companies. NOV has made strategic acquisition in this domain in order to enlarge its product portfolio

and its geographic expansion as well.

Petroleum Services & Supplies (30% of the revenue. 32.4% operating income)

This segment generated more than $11.7B in revenues during the FY 2013 which is an increase of 3% on a YOY scale.

This segment provides different consumable goods and services used in oil & gas wells. This segment manufactures

rents and sells different equipment used to achieve drilling operations. Demand from this segment is directly linked by

the level of oilfield drilling activity in the whole industry.

Distribution & Transmission (22% of the revenue, 6.8% operating income)

This segment generated more than $5.1B in revenue which represents a 30% increase from 2012. This segment provides

pipe, maintenance and repair for onshore and offshore drilling locations, pipeline operations and industrial sites.

Demand for this segment is linked to the level of drilling, servicing, and oil & gas production activities. In a same way,this segment is influenced by the US economy as well as government regulations and policies.

INDUSTRY OVERVIEW

NOV, or No Other Vendor, has been a dominant player in the oil & gas equipment &services business for over 140years. 90% of the worlds onshore and offshore rigs have a piece of NOV equipment onboard and NOVs growinginstalled base of products provides its economic moat of high switching costs for customers. NOV superior productsand global presence allows them to produce and service its products anywhere in the world.

Offshore ThemesNOV manufactures offshore drilling rigs capable of drilling for oil at a variety of depths and mostly fall into

one of three categories: jack-ups, floaters, and drill ships. Each are used to drill for oil at different depths andin different scenarios depending on the reserves location.

Worldwide Jack-up Fleet AgingOverall, the jack-up rig fleet is aging, with 68% of the fleet over twenty years old. More and more drillingoperators are retiring these aging rigs in favor for newer, more technically advanced rigs. These newer rigsdrill oil more efficiently, require less maintenance, utilize more automation, and are above all, safer. As aresult, newer rigs garner higher day rates, which is imperative in the current high-supply rig environment.Simply put, newer rigs have contracts and older do not. Operators with older fleets see their rigs go un-


Spring 2014


contracted and they are forced to stack them, or take them offline as to avoid burning through cashkeeping them online without cash flow. NOV delivers about 50 jack-ups to the market each year as thistailwind sends them more business.

Deep and Ultra-Deepwater is the FutureE&P companies target and develop reserves providing the lowest marginal cost barrel of oil. As a result,

shallower more easily accessible reserves are developed and depleted before deep, more expensive to developreserves are produced. As fewer shallow reserves remain, and oil prices are above $80/barrel, moreunconventional deepwater reserves are economic to produce. These deepwater plays cannot be accessed byjack-ups and can only be tapped by floaters or highly sophisticated rigs that float at the oceans surface andremain in position using global positioning systems. These highly advanced rigs are very expensive and alsoprovide higher margins for manufacturers like NOV. A key trend supporting NOV in the long-term is thebuild-out of national and international oil companys deepwater fleets.

Onshore Themes

Proliferation of ShalesRecent technological advancements have led to a natural gas boom in the United States and across the globe as E&Ps

can extract unconventional oil & gas economically. NOV markets a diversified product mix of onshore rigs, drill bits,top drives, coil tubing, downhole tools, flexible pipes, and all other necessary components to extract oil & gas. NOVsproducts are heavily used in E&P companys multi-stage hydraulic fracturing operations throughout the world. Naturalgas drilling has shifted to a 24/7/365 activity which is seen in increasing levels of utilization. As more wells are drilled ,average footage drilled per well is increased, and equipment is worked harder, NOV sees more business in its onshorenewbuild, workover, and consumables business segments.

ACQUISITIONS

NOV is a highly acquisitive company having made 27 acquisitions since 2009. NOVs most notable acquisition was

made in August of 2012 when they acquired Robbins & Myers. The deal was worth $2.4 billion and was NOVs largest

acquisition of all time. NOV used $1.1 billion in cash to pay for the acquisition, and borrowed approximately $1.4 billion

under the $3.5 billion revolving credit facility. Prior to the Robbins & Myers acquisition, NOV held very low debt levels.Robbins & Myers stood as a leading supplier of engineered, application-critical equipment and systems in global energy,

chemical and other industrial markets. NOV acquired Robbins & Myers in an attempt to expand its product offerings

and customer base. Earlier in 2012, NOV also acquired Wilson International for $800 million, NOV plans to use Wilson

International as the distribution arm of its business.

The acquisition of Wilson International, Robbins &

Myers, and CE Franklin led to a 30% increase in

revenue for NOVs distribution and transmission

segment. NOV expects to fund future cash

acquisitions primarily with cash flow from

operations and borrowings, including the un-

borrowed portion of the revolving credit facility or

new debt issuances; however NOV may also issueadditional equity either directly or in connection

with acquisitions. The table on the right shows

NOVs most significant acquisitions.

Company Date Deal Value ($ mil) EV/Net Sales

Robbins & Myers 2012 $2,435 2.39

Wilson International 2012 $800 N/A

NKT Flexibles 2012 $672 141.79

CE Franklin LTD 2012 $213 0.39

Ameron International Corp 2011 $640 1.28

Scomi Oiltools-Certain Assets 2011 $25 N/A

Advanced Production & Loading 2010 $431 N/A

Prosafe PLC-Turret, Swivel 2010 $165 N/A

Amber Lone Star Fluid Svcs LLC 2010 $48 N/A

Hochang Machinery Ind Co LTD 2009 $160 N/A

NOV M&A


Spring 2014


FINANCIALS

Revenue

In FY2013, NOV earned total revenue of $22.9B (3-year

CAGR 23.5%). Most revenue (48.6%) was earned by NOVs

Rig Technology segment. This segment grew 16% YOY inFY2013 (That segment has been strongly supported by major

capital expenditures accomplished through the cash flow

generated by contractors and services from drilling activities,

completion, increase in rigs construction and recent update of

old equipment by major oil companies. The segment also

experienced an increase in its backlog revenue by 14% YOY.

The aftermarket segment mainly composes non-backlog,

workover revenue increased by 15% YOY compare to 2012. In 2013, the acquisition of Robbins & Myers definitely

helped to increase the revenue of the Rig Technology segment. Moving forward, NOV closed four orders deep-water

floating rig equipment packages, and twenty five drilling equipment packages for jack-up rigs which contributed $3.6B

during the 4Q2013. NOV expects long term future revenue growth for offshore rig construction as E&P build out their

deepwater fleets. Additionally, after NOV completes its spin-off, the company will realize be able to drive growth in key

markets such as China, Russia, Mexico, Argentina, and Canada given the distribution businesses greater reach.

For the Petroleum Services and Supplies the slight increase of 3% in revenue on a YOY scale has been allowed thanks to

the drilling and completions activities in Canada which overall off-set the cyclical slow-down in the US. Thanks to this

increase in demand from Canada, NOV has been able to expand itself by 1% in this segment. However, oversupply in

the United States combined with a flat rig count contributed flat demand for drill pipe as well as downhole tools.

Finally,the international segment experienced the biggest increase in revenue by 18% due to large year-end projects

shipments where the international rig count increased by 5% YOY.

The distribution & transmission segment experienced 30% growth . This increase is the result of the Wilson acquisition

which occurred during the 2ndQ of 2012 followed by the acquisition of Franklin in the 3rdQ 2012. However, the US

segment decreased by 8% YOY due to bad weather conditions which caused fewer billing days available in the 4thQ2013.

Backlog - a Glimpse into the Future

NOVs backlog currently stands at a record high $16.3B, growing at a 5-year CAGR of 20%, with 93% allocated to

offshore equipment and 94% destined for international markets. NOVs backlog only comprises rig technology capital

equipment orders of $250,000 or more and these orders also require a down payment. As mentioned above, NOVs rig

technology sector constructs jack-ups, floaters, and other offshore rigs, along with other long-term projects which

require +2 years to complete depending on levels of customization, learning curve effect of skilled workers, and supply

chain efficiencies. As new orders are received, they are moved into a queue. This queue is moved into work in progress

and as orders are completed they are billed and recognized as revenue. As NOVs backlog serves as a leading indicator

of guaranteed future revenue, the market pays close attention to not only its value, but its growth. Slowing backloggrowth can be an indicator of softening demand for a manufacturer, yet there is some devil in this statistics details.Too

large of a backlog can impact a companys supply chain and increase marginal costs. NOVs huge backlog was

detrimental to margins in the near term.


Spring 2014


Book-to-Bill Ratio

The Book-to-bill ratio is an industry-specific

ratio expressed as # of incoming orders to

backlog : # of completed orders exiting

the backlog. Aside from monitoring backlog

value on an absolute basis, this ratio values it

on a relative basis, with a ratio less than one

indicating shrinking backlog and a ratio

greater than one indicating a growing

backlog.

EBITDA

Since FY2010, NOVs EBITDA has been growing

at a CAGR of 21% until FY2012. Since then,

EBITDA has stayed flat at $4.25B. NOV is expected

to reach an EBITDA level of $5.2B in 2015 which

will represent 20% growth during the period. This

impressive growth will be the result of a resurgence

in onshore demand for rigs and consumables, as well

as expected EBITDA from future acquisitions.

Margins

NOV currently maintains a 24% gross margin for 2013 and an 18.5% EBITDA margin, and a 10.3% net income margin

for the first quarter of 2014. Our DCF model projects a gross margin expansion leaving the gross margin at 25% and a

19.5% EBITDA margin. This is indicative of the completed spin-off of its distribution segment. NOVs rig technology

margins have steadily declined since mid-2010 due to an adverse mix shift in the segment, lower-margin acquisitions, andtaking on additional expenses in order to support several strategic growth initiatives. The adverse mix shift was a result

of offshore contracts contracted at higher prices in 2007 and 2008 which were then completed in low cost environments

in 2009 and 2010. As these projects have reached completion and been replaced with lower priced projects, rig

technology margins have experienced a steady decline. NOV has moved through the lower-margined segment of its

backlog and will recognize higher margins going forward in FY2014. Margins will NOVs petroleum services segment

experienced increased revenue of $155 million operating profit of $23 million YoY in 2013 despite flat demand, as a

result pricing pressure and under absorbed facilities continued to pressure margins. Overall, as commodity prices rise

and drilling activity increases in North America and internationally, NOVs margins should rebound. Orders for new

deep-water drilling rigs have steadily risen and the rig technology segment continues to enjoy high day rates for offshore

rigs. Despite the positive outlook, NOVs

margins may have difficulty expanding

beyond current levels due to due to lower-margin contributions from recent subsea

production equipment acquisitions, a bearish

outlook for land drilling, workover and

pressure pumping equipment markets in

North America. Low gas and natural gas

liquids prices as well as higher costs of

execution due to significantly compressed


Spring 2014


project timelines may also hurt margins. A steady flow through of lower priced projects and incremental expenses to

support long-term strategic growth initiatives will also contribute to margin stagnation.

Earnings

NOV recently reported earnings, with a Q1 EPS figure of $1.40, two cents above analyst estimates. NOV posted

quarterly revenue results of $5.78 billion missing the consensus estimate of $5.8 billion. The revenue figure translates to

a 6% decrease quarter over quarter. Despite the miss on revenue, the company saw backlog for capital equipment orders

for its Rig Technology segment at March 31, 2014 reach an all-time record of $16.35 billion, a one percent increase

from the 4Q 2013, and 27% from the previous years same quarter. New Rig Technology orders during the quarter were

$2.33 billion further showing the strong demand for oilfield equipment and NOVs dominant position in the market.

Dividend

NOV has been consitently paying dividends to its shareholders for the past 10 years. In the previous quarter, NOV

announced a strong dividend on February 27, 2014 of $0.26/share. That is a 100% increase relative to its previous years

dividends. The strong dividend increase can be attributed to NOVs ongoing and accomplished investment in different

technologies, new products and facilities. However, investors must ask, can NOV sustain this increase in dividends.

NOV has been able to generate a strong cash flow which can cover both dividend payments as well as capital

requirements. By the end of the FY 2013, NOVs operating cash flow was $3.3B, however dividends were only $389M

and Capex was $669 million. NOV is only paying a mere 16.7% of its net income in dividends. Moving forward, the

spin-off from its distribution and transmission segment will help NOV focus on its two main other segments. Throughrecent acquisitions and investments the company faces solid financial health; the strong dividend growth is certainly

repeatable. As NOV prefers to return cash to shareholders in the form of dividend increases, it typically does not do

initiate share repurchases.

Debt

Total Debt: $4.78 Billion Debt to Equity: 14.17% Interest Coverage Ratio: 30.8


Spring 2014


PEER GROUP IDENTIFICATION

This peer group includes the other members of

the S&P 500 Oil & Gas Equipment & Services indexwhich were chosen based on related business operations

and geographic distribution.

Baker Hughes Inc. (NYSE: BHI) Cameron International Corp. (NYSE: CAM) FMC Technologies Inc. (NYSE: FTI) Halliburton Co. (NYSE: HAL)

TARGET PRICE

After deriving price targets using historical average

valuation ($92.73), implied relative valuation ($95.32), and

DCF valuation (EM: $93.16; GP: $93.82), we opted for

the most conservative of our results: Historical Valuation.

Historical Average Target Price = $92.73Target Multiple EV/EBITDA =8.0x

NTM Consensus EBITDA = $4,903mm

Projected Capital Return: 18.7%

VALUATION

UNDERVALUATION

On a 3-year EV/EBITDA basis, NOV has deviated below where it normally trades on a historical average and relative

to its peer group. Given NOVs pending D&T segment spin-off and expected cash return to shareholders, strong

earnings potential, and strong FCF we believe NOVs shares are currently undervalued and present a favorable

risk/reward scenario. NOV has clearly been hurt by declining demand for new rigs within the U.S. onshore market and

recent operating margin disappointments; both factors have significantly weighed down the stock. Investors have

overreacted to the soft conditions now seen in U.S. land drilling, where rig counts have dropped. Towards the end of

2012, the stock was cut from equal weight to overweight due to NOV providing guidance that backlog had peaked and

was decreasing, however the speculation was false. At the beginning of 2013, NOV had reported that rig technology

sales were down 10%, this led to shares being sold off 6.2%, NOV subsequently announced that they were acquiringRobbins & Myers. Recently, NOV was subject to a hard sell off as investors overreacted to disappointing earnings, and

weak guidance. Revenue for the first quarter of 2014 was down 6% in a sequential basis. While the backlog of equipment

orders came in $16.35 billion the market was disappointed with new orders being booked which came in at just $2.33

billion.Without the adequate capacity, NOVs large backlog strained its supply chain and created marginal cost increases.

Management stated that NOV processed $8.7B of its backlog in 2013 and expects to bill $8.8B in 2014. The current

$16.3B backlog total effectively represents two years of revenue for NOV. In the recent 1Q2014 earnings call,

management highlighted that NOV currently has a record backlog value, which it guided would deflate to about $14B to

$15B by the end of FY2014. Along with missing margins, when investors heard this guidance, they overreacted and sold

off NOV.


Spring 2014

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Comparable Analysis

Peer Group Identification

Baker Hughes Inc. (NYSE:BHI) - Baker Hughes supplies oilfield services with high-performance drilling, evaluation

and completions, production technology and reservoir consulting in more than 80 different countries. Thanks to its

solutions, Baker Hughes are considerably reducing costs and risk as well as improving productivity for its clients in the

oil and gas industry.

Cameron International Corp (NYSE: CAM) - Cameron International Corp is a leading supplier and manufacturer of

flow equipment products, systems and services in the oil and gas industry operating at a worldwide scale. However, 2/3of its business comes from operations located outside the United States. They are operating through 3 main segments

which are: DPS (Drilling and production systems), V&M (Valves and Measurement) and PCS (Process & Compression

Systems).

FMC Technologies Inc. (NYSE: FTI) FMC Technologies Inc. supplies energy technology solutions for subsea

production and processing systems, surface wellhead systems, high pressure fluid control equipment, measurement

solutions and loading systems for the oil & gas industry. FTI is currently operating across 30 production sites through

17 different countries.

Halliburton Co.(NYSE: HAL) - Halliburton is the worlds largest supplier ofservices and products for the production

of oil and natural gas, development and exploration in the upstream industry through more than 80 different countries.

Their main geographic locations are divided between North America, Latin America, Europe, Africa, and Middle

East/Asia.

Leverage

Stock Equity Enterprise Dividend Gross EBITDA Debt/

Price Market Market ROE ROA ROC ROIC/WACC Yield Margin Margin Equity

% % % % % % % %

Company 4/29/2014 Value Value LTM NFY LTM NFY LTM LTM LTM LTM NTM LTM LTM MRQ

BHI US EQUITY $69.32 $30,222 $33,729 24.2 13.0 9.0 6.1 7.3 4.2 5.9 0.35 0.87 17.14 16.47 24.73

CAM US EQUITY $64.50 $13,170 $16,430 19.2 13.3 11.0 8.7 14.7 5.4 9.0 1.06 - 24.96 14.66 48.87FTI US EQUITY $56.50 $13,288 $14,380 25.1 17.0 13.9 10.0 25.0 8.3 N/A 1.31 - 22.41 14.18 59.22

HAL US EQUITY $62.78 $53,019 $58,739 19.7 12.3 9.5 6.7 19.1 9.7 14.3 1.21 0.88 15.25 20.71 57.55

Mean 22.9 14.4 11.3 8.3 15.6 6.0 7.4 0.9 0.29 21.5 15.1 44.3

Median 24.2 13.3 11.0 8.7 14.7 5.4 7.4 1.1 - 22.4 14.7 48.9

NOV US EQUITY $77.31 $33,155 $32,711 13.3 11.1 7.6 6.3 11.4 7.0 9.8 1.96 1.35 24.11 18.54 14.17

P/E Multiple EV/EBITDA

National Oilwell Varco Comparable Analysis

Capitalization Valuation Multiples Margins

($ in millions except per share)

Ratios


Spring 2014

T h e W i l l i a m C . D u n k e l b e r g O w l F u n d Pa

DISCLAIMER

This report is prepared strictly for educational purposes and should not be used as an actual investment guide.

The forward looking statements contained within are simply the authors opinions. The writer does not own any

National Oilwell Varco Inc. stock.

TUIA STATEMENT

Established in honor of Professor William C. Dunkelberg, former Dean of the Fox School of Business, for his

tireless dedication to educating students in real-world principles of economics and business, the William C.

Dunkelberg (WCD) Owl Fund will ensure that future generations of students have exposure to a challenging,

practical learning experience. Managed by Fox School of Business graduate and undergraduate students with

oversight from its Board of Directors, the WCD Owl Funds goals are threefold:

Provide students with hands-on investment management experience Enable students to work in a team-based setting in consultation with investment professionals. Connect student participants with nationally recognized money managers and financial institutions

Earnings from the fund will be reinvested net of fund expenses, which are primarily trading and auditing costs

and partial scholarships for student participants.

Documents

Initiating Coverage National Oilwell Varco Inc