National Oilwell Varco Inc. (NYSE: NOV) is still feeling the pressure from Credit Suisse. 24/7 Wall St. previously reported that the brokerage firm levied a fairly negative call on the oil equipment giant just a week ago, but it would seem the firm is not done with NOV yet.

Credit Suisse’s Jim Wicklund maintained the Underperform rating and lowered the price target to $40 from $43. The last downgrade was very recent, and to have another one this close is not a good sign. Note that the old price target of $43 was previously the lowest analyst price target, and Credit Suisse moved it even lower with this call.

In the current report, one thing that can be predicted for NOV is the decline of Rig Systems’ revenue if no, or only a few, new orders are received over the next 18 to 24 months. Guidance of roughly $7 billion in revenue out of backlog this year against an outlook of less than $2 billion in orders this year and the same in 2016 would result in a dramatic drop in Rig Systems’ revenues in 2017. Rig Systems is more of a fabrication business than a machining business, and currently over 50% of machining is outsourced, so while the revenues are likely to decline at an accelerating rate, margins should behave better.

ALSO READ: Can Investors Trust the Big Petrobras Gains?

As a result, the most recent Credit Suisse report changed its estimates:

Our 2015 EPS estimate drops to $3.66 from $4.62 following management guidance (2016 remains unchanged) and our target price moves to $40 from $43 (remains based on 6x the midpoint of our 2015/2016 EBITDA estimate). NOV has an excellent management team and is a great company, but we think the stock could be challenged for awhile, and thus we maintain our Underperform rating.

24/7 Wall St. noted that in the previous report the brokerage firm made the downgrade given the company’s outlook for the next two to three years. Despite being called an exceptionally well-managed company in the downgrade, the analyst’s take is that the call is simply too obvious not to make. NOV’s Rig Systems business is expected to be negatively affected by the lack of new deepwater rig orders through 2016, as well as the company’s exposure to the North American and international activity slow down due to the lower oil price.

Before oil prices started to drop last summer, the deepwater sector was moving into an inflation-induced down-cycle. This was characterized by the natural reaction to delay and defer projects until there was more return. NOV has a dominant market share in most of its businesses but manufacturing needs orders, which will be slow to come across the entire enterprise.

Again, this is the most bearish and extreme price target view of all analysts. Sometimes it is interesting to see what the outlier calls say. The next lowest analyst call came in at $58, which implies an upside, whereas Credit Suisse’s call does not.

ALSO READ: How Long Can Valero, Phillips 66 Turn Cheaper Crude Into Profits?

Shares of NOV were down 2.5% at $52.72 in the noon hour Wednesday. The stock has a consensus analyst price target of $68.78 and a 52-week trading range of $51.91 to $86.55.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.