John Heldman and David Hutchison presented their in-depth investment thesis on National Oilwell Varco (NYSE: NOV) at Wide-Moat Investing Summit 2014.
National Oilwell Varco: Leading provider of equipment and components used in oil and gas drilling and production. Sources of moat: 1) lowest cost of production and service delivery (largest in industry, competition only with specific offerings not entire product line; large installed base makes global service delivery cost-effective); 2) powerful brands (collection of 140+ branded products, some going back over 100 years, long track record with rig operators); and 3) high switching costs (difficult for new market entrant to combine wide product line with years of experience NOV offers its customer base; customers familiar with NOV equipment, training customer employees to use complex products; often “no other vendor”). This leads to 15-20% operating margins for years (highest among major oil patch vendors) and exceptionally high returns on assets of 30%+ pre-tax ($3.5B EBITA on ~$10B PPE + Inventory). Heldman and Hutchison estimate NOV fair value at $178 per share by 2017 based on $6,050 million of EBITA and an 11x multiple (assumes share count declines from 429 million to 374 million as a result of share repurchases during the period).
About the instructor:
John Heldman brings over 28 years of experience to the management of investment portfolios. Prior to founding Triad, he was a Senior Vice President and Portfolio Manager with Neuberger Berman. John has also managed investment portfolios for Deutsche Bank, Scudder Investments and Bank of America, including managing equity funds and serving on the Equity Strategy Committee. He obtained his Bachelor of Science degree in Finance and Master of Business Administration from California State University, Long Beach. John is a CFA charterholder, and a member of CFA Institute and CFA Society Orange County.
David Hutchison has 20 years of experience in investment management. Prior to joining Triad, he served as Investment Strategist for Chamberlain Group, directing investment manager research. Dave also founded and managed Hutchison Capital, a registered investment advisor. He holds a Bachelor’s degree in Political Science from Macalester College and a Master of Business Administration from the University of Southern California’s Marshall School of Business. Dave is a CFA charterholder, and a member of CFA Institute and CFA Society Orange County.
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