NOV – Negative management sentiment indicates near-term upside may be limited, but overly bearish market expectations support long-term outperformance

• National Oilwell Varco, Inc. (NOV:USA) currently trades at historical lows relative to UAFRS-based (Uniform) Assets, with a 1.1x Uniform P/B. At these levels, the market has fairly limited expectations for the firm to see Uniform ROA remain well below historical averages going forward. Although management has concerns about margins, revenue, and demand, overly bearish market expectations suggest long-term outperformance remains warranted should NOV just return to historically average profitability levels
• Specifically, management may be concerned about the sustainability of recent international mix improvements and business-wide margin improvements. Furthermore, they may be concerned about further margin erosion in offshore components, and they may lack confidence in their ability to sustain recent cost savings. Moreover, they may be concerned about further SG&A cost increases and about continued rig count headwinds. In addition, management may be exaggerating the value of their series 50 motors, and they may lack confidence in their ability to sustain recent international revenue growth. Finally, they may be concerned the sustainability of EBITDA growth, Subsea revenue growth, and record high bookings
• That said, despite potential near-term headwinds, valuations support long-term outperformance should NOV just return to historical profitability levels going forward.