Valens Equities Weekly Insights and Inflections for August 17, 2016
Each week the Valens Securities team highlights our most interesting insights from across our tools and our analysis, including individual company industry and macro insights
Expectations for NOV ROA’ to remain muted following declines in 2016 may be unwarranted, as management has confidence in improved margins and business activity.
NOV is trading at a 1.3x V/A’, near historical lows. At these levels, the market is pricing in expectations for ROA’ to rebound only modestly following declines in 2016, to 7.8% in 2020, accompanied by 2.4% Asset’ growth. The firm saw both declines in ROA’ and Asset’ shrinkage in 2015 as the firm attempted to navigate a difficult energy market environment. This led to ROA’ reaching lows not seen since 2005, and Asset’ shrinkage which has only occurred once before, in 2013. At current valuations, the market is expecting ROA’ to remain muted after substantial declines in 2016, with the firm experiencing little-to-no Asset’ growth going forward, as opposed to seeing a rebound in growth and profitability back toward average historical levels. However, Valens’ qualitative analysis highlights management’s confidence in their ability to drive improved incrementals and margins, as well as the benefits of recent acquisitions and trends in their end markets. Considering management’s strong confidence in the business and historically low valuations, NOV appears to have potential for equity upside.
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