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
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.