National Oilwell Varco Inc. (NYSE: NOV) has been hit hard by falling oil prices over the past year, even within the past quarter with the price of crude dropping below the $50 mark. Considering this performance, or lack thereof, analysts have taken a more cautious view on this stock.

Argus downgraded National Oilwell Varco to a Hold rating from Buy. This downgrade reflects its view that the company’s customers are likely to reduce spending on capital equipment during a period of low oil prices, which is expected to continue over the next 12 to 18 months. Additionally, the independent research firm is heavily exposed to the deepwater market at a time when exploration and production (E&P) producers are favoring short-cycle, fast-payback onshore projects and are facing challenges from an oversupply of deepwater rigs. Argus also expects the company’s backlog to decline as orders slow and notes that the share price historically has been closely correlated with the backlog.

The firm lowered its 2015 earnings per share (EPS) estimate to $2.99 from $4.10 and its 2016 estimate to $2.19 from $3.49, reflecting expectations for reduced spending by the company’s oilfield services customers. Looking ahead, Argus expects the $10.2 billion backlog to decline as new orders fail to offset backlog deliveries and notes that declining orders point to weak future earnings.

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Argus said in its report:

Most National Oilwell Varco businesses have been hurt by low oil prices, as oilfield service companies cut back on spending and new orders. In the second quarter, National Oilwell Varco saw orders in its largest segment, Rig Systems, fall 77% from the prior year, with a book-to bill ratio of just 0.18. This lowered the segment backlog by 40% from the prior year, to $9.0 billion. In addition, we note that 91% of the current backlog is in the offshore market, which we expect to face pressure in the near term. We expect further declines in the backlog over the next 12 months due to slow order activity, and note that the NOV share price has historically been closely correlated with the company’s backlog.

At the end of July, National Oilwell Varco reported second-quarter EPS of $0.77, down from $1.14 per share sequentially and $1.47 per share in the same period of the previous year. The company beat the consensus estimate of $0.64 but missed Argus’s estimate of $1.00. At the same time, revenue fell 25.6% year over year and 18.9% sequentially. The firm noted that this company’s margins have held up slightly better than in previous downturns, reflecting benefits from cost-reduction programs and efforts to bring more manufacturing work in-house.

Shares were down 1% at $40.20 early Wednesday afternoon. The stock has a consensus analyst price target of $45.10 and a 52-week trading range of $ $40.30 to $86.55. Shares have underperformed the market year to date, declining 36% on a total-return basis while the S&P 500 has gained 3%. The shares have also underperformed over the past year, with a decrease of 48% versus an 11% increase for the index.

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