Morgan Stanley believes the negative catalysts underlying its bearish thesis on National-Oilwell Varco, Inc. NOV 8.88% have played out, and the firm has upgraded the stock from Underweight to Overweight. Analyst Ole Slorer believes the market should shift its focus to the company’s $4 EPS potential.

“We estimate that at the 2014 peak, EBIT from new offshore rigs was $1.1bn, or 25% of total & ~$2 of the $6.08 in EPS in 2014,” Slorer explains. “We thus see $2.50-3.00 as midcycle earnings by late 2018 and over $4 by 2020.”

The fact that National-Oilwell has underperformed its oil services peers but has exhausted its negative catalysts makes the stock a top contrarian pick in Slorer’s eyes. He sees a solid balance sheet and the potential for strong earnings momentum going forward.

Morgan Stanley predicts…

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