Shares of National Oilwell Varco (NOV) jumped 6% Wednesday, in midday trading, after Morgan Stanley analysts upgraded their rating on the company's stock to Outperform.
Meanwhile, the oil-and-gas equipment manufacturer's market cap has shrunk about 43% over the past 12 months to $11.7 billion -- which could signal a hefty discount on the M&A front, especially if Morgan Stanley is accurate in its assessment of National Oilwell Varco's growth prospects.
And such a potential tie-up would be especially beneficial for General Electric (GE), as its CEO, Jeffrey Immelt, continues his year-long push to return the manufacturer to its industrial roots while simultaneously winding down GE Capital, Real Money's Jim Cramer said in an email.
Immelt's quest to scrap GE Capital -- the longtime lending arm that was largely responsible for pulling down GE shares in the 2008 financial crisis -- began in earnest last April, with the CEO's plan to counterbalance GE Capital sales with industrial megadeals. Such acquisitions have included GE's $10.3 billion purchase of French turbine-maker Alstom's (ALSMY) grid businesses -- GE's largest acquisition to date.
And now, with GE's fledgling Industrial Internet growing in strength, a tie-up with National Oilwell Varco would make all the more sense, Cramer said in a Wednesday email. (GE stock is a holding in Cramer's Action Alerts PLUS charitable trust.)
"GE is all about the digitized industrial revolution," he said, noting that oil-well drilling is a sector that stands to profit from GE's Industrial Internet, which essentially combines machine sensors with GE's proprietary Predix cloud software to improve machine performance -- from jet and locomotive engine to wind farms. GE most recently tapped Oracle (ORCL) as an Industrial Internet partner, as Real Money reported, and has more than tripled its partners on the project since rolling out Predix last fall.
GE's initial six partners included Action Alert's PLUS member Cisco Systems (CSCO) and Intel (INTC), as well as wireless giants Verizon (VZ), AT&T (T), Vodafone (VOD), and Sprint's (S) parent Softbank.
"Oil well drilling could sure use that and the king of drilling, National Oilwell Varco, could use Predix on its machines so you would know ahead of time when they were ready for service," Cramer said. "So you could see how this $11 billion company, once valued at $33 billion, could be the subject of takeover talk."
Meanwhile, Morgan Stanley justified its $45 price target on National Oilwell Varco, and Overweight rating, in a Wednesday report that emphasized investor sentiment surrounding the company is at "an all-time low" with only 15% of analysts holding Buy ratings vs. 75% for comparable oil-and-gas service providers.
GE's most recent bids in the oil-and-gas sector include February's announcement the company has signed a host of subsea drilling projects with Norway's Statoil (STO), following last October's deal to acquire Norwegian services provider Advantech, although the financial terms of the deal were not disclosed.