Nat'l Oilwell Varco Stays Pumped
We are maintaining our Buy recommendation on National-Oilwell Varco, Inc. (NOV) shares, given its strong leverage to the current rig construction cycle. Despite the recent commodity-price weakness, demand continues to remain robust. We believe that oil prices will need to drop significantly from current levels to materially impact the outlook for oilfield activity levels.
The company?s growing international footprint adds to its positive prospects. In the most recent quarter, the company booked $2.2 billion in new orders, bringing its total backlog to a record $10.8 billion, highlighting the high level of earnings visibility, going forward.
The improving outlook for the domestic onshore market further adds to the company?s favorable prospects. The merger with Grant Prideco has transformed the company into an oilfield machinery powerhouse enjoying a very strong cyclical leverage.
A sustained and meaningful pullback in crude oil and natural gas prices will impact the outlook for oilfield activity levels. Particularly significant in the near term is a slowdown in land drilling activities in the U.S. in response to weak commodity prices. Additionally, growing rig-manufacturing activities in emerging markets like China remains a long-term competitive challenge.
Approximately 91% of the company?s total backlog at the end of first-quarter 2008 pertained to international markets. Growing international presence exposes the company s operations to geo-political risks.
Focus Media Prospects Strong
Focus Media Holding, Ltd. (FMCN) announced strong growth in revenue and earnings for the second quarter. These results exceeded market expectations, despite the Sichuang Earthquake. In addition, the company?s blended gross margin improved sequentially. Focus Media expects to maintain its growth even after the?Beijing Olympic Games.
Focus Media is well positioned to leverage the great growth opportunity of the out-of-home and Internet advertising market in China. The company?s smart business model allows its core business to face limited competition. It is believed that it has more than 90 percent market share in the commercial building network and frame poster network in China.
The company?s revenue from online brand advertising is second only to Sina.com in China. However, we think its current stock price doesn?t reflect the company?s growth prospects. Therefore, we are maintaining Buy recommendation on the stock.
The stock is trading at 15.5x our 2008 EPS estimate, which is lower than the industry mean. The stock is also trading at 11.6x our 2009 EPS estimate, which is much lower than the industry mean.
