NOV cut to Sell at Goldman Sachs after trading at premium to OFS peers

Feb. 23, 2022 9:16 AM ETNOV Inc. (NOV)By: Carl Surran, SA News Editor1 Comment

Oil Field.

Leonid Ikan/iStock via Getty Images

NOV Inc. (NYSE:NOV) -2.9% pre-market after Goldman Sachs downgrades shares to Sell from Neutral with a $16 price target, saying the stock currently trades at a premium to oilfield services peers.

While NOV should benefit from an improving order book, Goldman's Neil Mehta sees several factors including supply chain and pricing power that likely will "decouple the historical relationship between stock performance and orders in the near term in the current macro environment."

Investor expectations of long-term normalized EBITDA margin may be overly optimistic, Mehta writes, given activity levels likely will be meaningfully below 2014 levels and NOV's manufacturing business model is less likely to build in the same degree of operating leverage as asset light service companies.

Finally, NOV shares trade at a premium to large-cap oilfield service companies on a through cycle free cash flow yield basis compared to a discount in the past, and trade at a ~2x premium to comparable machinery manufacturing companies with similar 2023 margin profiles.

Citing weaker margin expectations while coping with inflationary and COVID-19 headwinds, J.P. Morgan recently downgraded NOV to Neutral from Overweight.

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