Lowering Our NOV FVE to $20 as Low Equipment Demand and High Price Competition Suppress Margins

After taking a fresh look at NOV, we’re lowering our fair value estimate to $20 per share from $28 and maintaining our no-moat and stable moat trend ratings. Persistent inventory overcapacity in oilfield services continues to suppress demand for NOV’s equipment. We now estimate average revenue growth of 12% over the next five years. We forecast operating margins will reach 9% by midcycle, compared with our prior estimate of 14%. We still expect NOV will improve its profitability over the next few years as it incorporates rightsizing initiatives, but we think its diversification into more of a generalist oilfield-services provider will cap margin expansion, given high price competition. However, a more diverse revenue mix will ensure growth opportunities in other end markets, like wellbore technologies and completion and production solutions, while reducing NOV’s reliance on rig technologies, typically a capital-intensive space.