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 near historical lows relative to UAFRS-based (Uniform) Assets, with a 1.7x Uniform P/B. At these levels the market has fairly limited expectations, pricing in expectations for the firm to see Uniform ROA remain well below historical averages going forward, which would support long-term outperformance should NOV get back to historical profitability levels. However, management has concerns about near-term market softening, rising costs, and their ability to sustain evaluated performance levels, suggesting upside might be limited in the near-term
• Specifically, management may have concerns about short-term softness in their industry, and inflationary pressures that are further compounded by recent tariffs. Additionally, they may be overstating optimism related to targets in the M&A market, and about closing several acquisitions. Furthermore, they may be concerned about increased costs due to higher labor and incentive compensation. Moreover, they may lack confidence in their ability to pass on a portion of elevated costs to their customers. Also, they may lack confidence in the sustainability of robust revenue and elevated demand levels, and may be concerned about the slowing of order growth in Q2