September 14, 2016

Valens Equities Weekly Equity Idea Highlight for September 14, 2016 – National Oilwell Varco, Inc.


This week the Valens Securities team highlights our most interesting equity insight from across our tools and our analysis.

National Oilwell Varco (NOV): Market pessimism about the company’s recovery, substantial strategic acquisition opportunities, and management’s confidence about their outlook spell equity upside potential

nov-stock-chart-2016-09-14

The market currently expects any recovery in NOV’s profitability to be very modest. NOV has historically been an excellent strategic acquirer. They have been able to process bolt-on acquisitions, driving growth and operational improvement. This drove strong 15%-20% ROA’ from 2005-2015, until the crash in the energy market. In 2016, ROA’ is projected to be below 2%, but markets are only expecting ROA’ to reach 7% over the next five years, well below historical profitability and in line with prior 2000-2002 trough ROA’. This appears too pessimistic longer-term, spelling potential for equity upside, especially with V/A’ at 1.3x, well below historical valuation levels, even in 2000-2002.

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