National Oilwell Varco's Guidance And Dividend Cut: Baird Updates First Half 2016 Outlook

National-Oilwell Varco, Inc. NOV announced a reduction in its dividend, while lowering its 1Q16 revenue growth guidance to 20 percent quarter on quarter.

Baird’s Daniel R. Leben maintained Neutral rating on the company, while lowering the price target from $29 to $28.

Dividend Cut

“Representing an annualized $615 million in cash savings, we agree with the rationale behind the dividend reduction as it embeds greater staying power over a more prolonged downturn,” Leben mentioned.

Year of Declines

Following the sequential rig count decline in 4Q15, in the U.S. and North America, rig count saw accelerated decline in 1Q16. International rig count also witnessed an accelerated decline from the 4Q15 pace.

Leben expects National-Oilwell Varco to witness top line decline of 47 percent year on year in 2016.

“Within NOV’s more real-time activity reflective businesses, we expect it will be 2H16 at the earliest before we see stabilization, and subsequently, recovery,” Leben stated.

Estimates Cut

The 1Q16, 2016 and 2017 EPS estimates have been lowered, to reflect “a steepening in 1H16’s deterioration pace for NOV’s shorter-cycle exposures, as well as a lengthening of the timeline until recovery across the longer-cycle businesses.”