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PRO Top Ideas
Top Ideas are high-conviction long or short ideas focused on market mispricings with asymmetric risk/reward profiles.
Spin-Off NOW, Inc: Market Leadership, Experienced Management, And Pristine Balance Sheet Point To Compounding Value
- DistributionNOW or NOW, Inc. (DNOW), the recent spin-off from National Oilwell Varco, Inc. (NOV), ranks second by market share in the fragmented but fast consolidating energy distribution market.
- DNOW’s pristine balance sheet – $236 million in cash, no debt – and low cost of capital should facilitate organic market share gains and rapid growth via M&A activity.
- In contrast, DNOW’s primary competitor and market leader, MRC Global (MRC), has much higher leverage and now needs to enter a period of de-leveraging, which will likely slow growth.
- DNOW’s management team has a 10 year, successful track record of accretive M&A. The spin-off is only the most recent in a long series of strategic actions to create value.
- DNOW’s operating margins are likely to inflect significantly higher after digesting two large acquisitions and transitioning to a global ERP system.
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