Resources

Valens Equities Weekly Insights and Inflections for August 17, 2016

August 22, 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.

Capture NOV

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.

Market Insights
Most Compelling Long Ideas
FB, ZG, DLTR, DHI, GOOGL
Most Compelling ECF™ Inflections
ABC, AYI, WCN, NXPI, VRX

Company Specific Highlights & Insights:
AYI, ALK, APH, BIIB, CCI, CTXS, CVX, DFS, FB, GNTX, GOOGL, HON, HXL, JNJ, KMI, LULU, PAYX, PFE, PHM, SWX:ROG, SAVE, STLD, VFC, SGX:Z74

Aggregate ECF™ Trend Analysis:
Management confidence levels continue to be volatile, ranging between 24 month highs and 24 month lows in the past 6 months. In April, Management Confidence spiked higher, but the metric subsequently rolled over in May, falling to the low end of its range. This signaling that growth remains elusive, as management teams continue to not be confident enough to invest in their businesses.

If you are interested in seeing any of the highlighted analyses, please contact the Valens team at valens@valens-securities.com

You don’t have access to the Valens Research Premium Application.

To get access to our best content including the highly regarded Conviction Long List and Market Phase Cycle macro newsletter, please contact our Client Relations Team at 630-841-0683 or email client.relations@valens-research.com.

Please fill out the fields below so that our client relations team can contact you

Or contact our Client Relationship Team at 630-841-0683