Stock Analysis on Net
Stock Analysis on Net

National Oilwell Varco Inc. (NYSE:NOV)

This company has been moved to the archive! The financial data has not been updated since August 3, 2016.

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

National Oilwell Varco Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 19.32%
01 FCFE0 1,641
1 FCFE1 1,754 = 1,641 × (1 + 6.89%) 1,470
2 FCFE2 1,868 = 1,754 × (1 + 6.49%) 1,312
3 FCFE3 1,982 = 1,868 × (1 + 6.10%) 1,167
4 FCFE4 2,095 = 1,982 × (1 + 5.70%) 1,033
5 FCFE5 2,206 = 2,095 × (1 + 5.31%) 912
5 Terminal value (TV5) 16,580 = 2,206 × (1 + 5.31%) ÷ (19.32% – 5.31%) 6,855
Intrinsic value of National Oilwell Varco Inc. common stock 12,749
 
Intrinsic value of National Oilwell Varco Inc. common stock (per share) $33.76
Current share price $32.66

Based on: 10-K (reporting date: 2015-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.72%
Expected rate of return on market portfolio2 E(RM) 13.44%
Systematic risk of National Oilwell Varco Inc. common stock βNOV 1.67
 
Required rate of return on National Oilwell Varco Inc. common stock3 rNOV 19.32%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rNOV = RF + βNOV [E(RM) – RF]
= 4.72% + 1.67 [13.44% – 4.72%]
= 19.32%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

National Oilwell Varco Inc., PRAT model

Microsoft Excel
Average Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011
Selected Financial Data (US$ in millions)
Cash dividends 710 703 389 209 191
Net income (loss) attributable to Company (769) 2,502 2,327 2,491 1,994
Revenue 14,757 21,440 22,869 20,041 14,658
Total assets 26,725 33,562 34,812 31,484 25,515
Total Company stockholders’ equity 16,383 20,692 22,230 20,239 17,619
Financial Ratios
Retention rate1 — 0.72 0.83 0.92 0.90
Profit margin2 -5.21% 11.67% 10.18% 12.43% 13.60%
Asset turnover3 0.55 0.64 0.66 0.64 0.57
Financial leverage4 1.63 1.62 1.57 1.56 1.45
Averages
Retention rate 0.84
Profit margin 8.53%
Asset turnover 0.61
Financial leverage 1.56
 
FCFE growth rate (g)5 6.89%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

2015 Calculations

1 Retention rate = (Net income (loss) attributable to Company – Cash dividends) ÷ Net income (loss) attributable to Company
= (-769 – 710) ÷ -769
= —

2 Profit margin = 100 × Net income (loss) attributable to Company ÷ Revenue
= 100 × -769 ÷ 14,757
= -5.21%

3 Asset turnover = Revenue ÷ Total assets
= 14,757 ÷ 26,725
= 0.55

4 Financial leverage = Total assets ÷ Total Company stockholders’ equity
= 26,725 ÷ 16,383
= 1.63

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.84 × 8.53% × 0.61 × 1.56
= 6.89%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (12,333 × 19.32% – 1,641) ÷ (12,333 + 1,641)
= 5.31%

where:
Equity market value0 = current market value of National Oilwell Varco Inc. common stock (US$ in millions)
FCFE0 = the last year National Oilwell Varco Inc. free cash flow to equity (US$ in millions)
r = required rate of return on National Oilwell Varco Inc. common stock

FCFE growth rate (g) forecast

National Oilwell Varco Inc., H-model

Microsoft Excel
Year Value gt
1 g1 6.89%
2 g2 6.49%
3 g3 6.10%
4 g4 5.70%
5 and thereafter g5 5.31%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 6.89% + (5.31% – 6.89%) × (2 – 1) ÷ (5 – 1)
= 6.49%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 6.89% + (5.31% – 6.89%) × (3 – 1) ÷ (5 – 1)
= 6.10%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 6.89% + (5.31% – 6.89%) × (4 – 1) ÷ (5 – 1)
= 5.70%