NOV Earnings: Strong Free Cash Flow Steps Over Muted Market Expectations

No-moat-rated NOV’s fourth-quarter revenue of $2.31 billion was broadly in line with our expectations, though earnings per share of $0.41 modestly missed what we hoped to see. Even so, the stock performed well on the Feb. 5 trading day (up 12%-13% at the time of writing) after the fourth-quarter print. We attribute its performance to excessively bearish expectations from the Street that overreacted to management’s dour commentary last quarter and strong free cash flow generation of $473 million in the fourth quarter. While we don’t expect these tailwinds to recur, since they were tied to normalizing global supply chains, working capital improvements allowed NOV to convert 86% of its adjusted EBITDA into free cash flow. We think over 50% free cash flow conversion is a more normal scenario.