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 the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

National Oilwell Varco Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 16.10%
01 FCFF0 1,013
1 FCFF1 1,101 = 1,013 × (1 + 8.65%) 948
2 FCFF2 1,197 = 1,101 × (1 + 8.76%) 888
3 FCFF3 1,303 = 1,197 × (1 + 8.88%) 833
4 FCFF4 1,421 = 1,303 × (1 + 9.00%) 782
5 FCFF5 1,550 = 1,421 × (1 + 9.11%) 735
5 Terminal value (TV5) 24,210 = 1,550 × (1 + 9.11%) ÷ (16.10% – 9.11%) 11,478
Intrinsic value of National Oilwell Varco Inc. capital 15,664
Less: Debt (fair value) 3,489
Intrinsic value of National Oilwell Varco Inc. common stock 12,175
 
Intrinsic value of National Oilwell Varco Inc. common stock (per share) $32.24
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.

Weighted Average Cost of Capital (WACC)

National Oilwell Varco Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 12,333 0.78 19.98%
Debt (fair value) 3,489 0.22 2.36% = 2.89% × (1 – 18.23%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 377,631,319 × $32.66
= $12,333,438,878.54

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (-30.22% + 29.74% + 30.42% + 29.16% + 32.07%) ÷ 5
= 18.23%

WACC = 16.10%

FCFF Growth Rate (g)

FCFF 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)
Interest and financial costs 103 105 111 49 40
Net income (loss) attributable to Company (769) 2,502 2,327 2,491 1,994
Add: Net income attributable to noncontrolling interest 2 5 1 (8) (9)
Less: Income from discontinued operations — 52 — — —
Add: Income tax expense 178 1,039 1,018 1,022 937
Earnings before tax (EBT) (589) 3,494 3,346 3,505 2,922
 
Effective income tax rate (EITR)1 -30.22% 29.74% 30.42% 29.16% 32.07%
 
Interest and financial costs, after tax2 134 74 77 35 27
Add: Cash dividends 710 703 389 209 191
Interest expense (after tax) and dividends 844 777 466 244 218
 
EBIT(1 – EITR)3 (635) 2,524 2,404 2,526 2,021
 
Current portion of long-term debt and short-term borrowings 2 152 1 1 351
Long-term debt, excluding current portion 3,928 3,014 3,149 3,148 159
Total Company stockholders’ equity 16,383 20,692 22,230 20,239 17,619
Total capital 20,313 23,858 25,380 23,388 18,129
Financial Ratios
Retention rate (RR)4 — 0.69 0.81 0.90 0.89
Return on invested capital (ROIC)5 -3.13% 10.58% 9.47% 10.80% 11.15%
Averages
RR 0.82
ROIC 10.50%
 
FCFF growth rate (g)6 8.65%

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 EITR = 100 × Income tax expense ÷ EBT
= 100 × 178 ÷ -589
= -30.22%

2 Interest and financial costs, after tax = Interest and financial costs × (1 – EITR)
= 103 × (1 – -30.22%)
= 134

3 EBIT(1 – EITR) = Net income (loss) attributable to Company – Income from discontinued operations + Interest and financial costs, after tax
= -769 – 0 + 134
= -635

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [-635 – 844] ÷ -635
= —

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × -635 ÷ 20,313
= -3.13%

6 g = RR × ROIC
= 0.82 × 10.50%
= 8.65%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (15,822 × 16.10% – 1,013) ÷ (15,822 + 1,013)
= 9.11%

where:

Total capital, fair value0 = current fair value of National Oilwell Varco Inc. debt and equity (US$ in millions)
FCFF0 = the last year National Oilwell Varco Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of National Oilwell Varco Inc. capital

FCFF growth rate (g) forecast

National Oilwell Varco Inc., H-model

Microsoft Excel
Year Value gt
1 g1 8.65%
2 g2 8.76%
3 g3 8.88%
4 g4 9.00%
5 and thereafter g5 9.11%

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)
= 8.65% + (9.11% – 8.65%) × (2 – 1) ÷ (5 – 1)
= 8.76%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 8.65% + (9.11% – 8.65%) × (3 – 1) ÷ (5 – 1)
= 8.88%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 8.65% + (9.11% – 8.65%) × (4 – 1) ÷ (5 – 1)
= 9.00%