NOV - NOV Misses On Earnings But Profits Seen Growing Massively Soon

Summary

• Oil services stocks have been among the best names so far this year.
• NOV Inc reported an earnings miss, though, and shares traded lower on Friday as its sector rallied big.
• I see fundamental upside to NOV here, but the chart is not quite as bullish.

Seeking to buck the S&P 500 bear? Look to strong price action in the Energy sector. The oil services space, specifically, features some of the 2022 winners. One company appears to be turning things around to the good side, but it reported a disappointing Q3 report this week. Let's drill down to see if the stock is a buy here.

Energy, Oil Services Stocks Surge In October

According to Bank of America Global Research, NOV Inc. (formerly National Oilwell Varco) (NOV) is a large-cap manufacturer of oilfield capital equipment globally. It designs, constructs, manufactures, and sells systems, components, and products for oil and gas drilling and production, and industrial and renewable energy sectors worldwide. The company operates through three segments: Wellbore Technologies, Completion & Production Solutions, and Rig Technologies.

The Texas-based $8.9 billion market cap Energy Equipment & Services industry within the Energy sector trades at a high 941 trailing 12-month GAAP price-to-earnings ratio and pays a small 0.9% dividend yield, according to The Wall Street Journal .

Tightness in the global energy market, specifically among offshore drillers, should support NOV's operations, sales, and margins in the years ahead. A whopping 60% of NOV's '23 sales are expected to come from its international and offshore segments.

Strong upcoming free cash flow should allow the energy company to pay down debt and return capital to shareholders. Downside risks should be respected, though. They include weak oil & gas prices and lower energy exploration and production spending should a global recession strike soon. Regulatory risk is also significant given the firm's exposure to hydraulic fracturing.

On valuation, BofA analysts see earnings climbing into the black in 2022 after two years in the red. EPS growth should then accelerate next year and grow at a still-strong rate in 2024. The Bloomberg consensus forecast is slightly less sanguine than BofA's outlook. NOV's dividend is up sharply this year but is seen as rising very slowly in the next two years. If a steep global recession is sidestepped, expect bigger dividends in the coming quarters.

The company's operating and GAAP P/Es look to turn much more favorable should the stock stay where it is. Moreover, its forward EV/EBITDA multiple looks good in 2023. Free cash flow should be strong next year, too. Overall, I like the valuation trends despite weak earnings looking backward.

NOV Inc: Earnings, Valuation, Free Cash Flow Forecasts

After reporting a disappointing earnings miss Thursday night, NOV traded lower during the day on Friday. Its next earnings date is unconfirmed for Thursday, February 2 after market close, according to corporate event data provided by Wall Street Horizon.

Corporate Event Calendar

The Technical Take

NOV might be due for a pause. I see resistance on the chart in the $24 to $26 range. That's where shares pulled back from during the first quarter, and following the disappointing Q3 report this past week, sellers once again emerged.

Notice, though, that the 50-week and 200-week moving averages are about to feature a bullish crossover, signaling a turn in its long-term trend. Moreover, the weekly RSI shows a bullish trend breakout. So, there are definitely some bullish signs to go along with the stock encroaching on resistance. A move above $26 would confirm a breakout. Overall, it's a mixed chart.

NOV: Some Resistance, But Bullish Signs Are There

The Bottom Line

I like the positive inflection in earnings and the chart shows potential after this near-term pause. Long-term investors seeking energy exposure can certainly dip into NOV here while swing traders are perhaps better served waiting for a broader breakout.

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