NOV - NOV: Shares Still A Value Ahead Of Earnings At A Key Spot Technically

2023-03-27 11:36:28 ET

Summary

• Oil prices are off the lows following a lack of negative news over the last few days.
• The Energy sector remains priced low compared to earnings; I see shares of NOV as a continued value with impressive EPS growth ahead.
• With an earnings date in late April, I highlight an important price on the chart to monitor.

Oil prices fell below the pivotal $70 spot last week. With no extra shoes dropping over the past weekend, WTI managed to climb back above that psychologically important price, but the bears still appear in control. As a result, many Energy sector stocks have underperformed lately.

I still see value in shares of NOV ahead of its April earnings report.

Oil Trying To Rally Above $70

According to Bank of America Global Research, NOV Inc. (NOV) (formerly National Oilwell Varco) 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 Houston-based $6.8 billion Energy Equipment & Services industry company within the Energy sector trades at a high 44.1 trailing 12-month GAAP price-to-earnings ratio and pays a small 1.2% dividend yield, according to The Wall Street Journal.

With an improving balance sheet and decent secular growth potential in the international offshore oil equipment market, there are tailwinds for NOV. And that is seen in its rapid expected EPS growth rate . While NOV can be more recession resilient than other energy plays through its diversified operations, it's still a stock at risk should global growth deteriorate as 2023 progresses.

Back in February, the firm reported an EPS beat with an impressive 36% YoY climb in revenue (also a beat) while free cash flow was pressured by its international and offshore segments where large investments were made. I would like to see oil climb back above $70 and hold that spot, otherwise, lower oil prices is a key risk.

On valuation , analysts at BofA see earnings improvement through 2025. Per-share profits are seen as climbing from negative territory in 2021 to positive in its FY2023. Robust bottom-line growth is expected over the coming quarters, though recent weakness in oil prices could lead to negative revisions to estimates made last year. The Bloomberg consensus forecast is not as sanguine as what BofA projects. Dividends, meanwhile, are seen as rising at a steady clip, but the yield should remain modest.

NOV's forward operating P/E of 15 is above the sector average, but I noticed that the forward PEG ratio is attractive at .21, but if we normalize growth to 30%, then the peg is more like 0.5. With decent free cash flow, the firm trades at more than a 25% discount to its 5-year historical forward price-to-sales ratio, so I continue to see value in the stock.

NOV: Earnings, Valuation, Free Cash Flow Forecasts

Looking ahead, corporate event data provided by Wall Street Horizon show a confirmed Q1 2023 earnings date of Wednesday, April 26, AMC with a conference call later that morning. You can listen live here .

Corporate Event Risk Calendar

The Options Angle

Digging into the upcoming earnings report, data from Option Research & Technology Services (ORATS) show a consensus EPS forecast of $0.22. NOV has a mixed earnings beat rate history, but the general trend is to the downside as the Energy firm has missed analysts' estimates in six of the past nine quarters. Shares have traded lower post-earnings in four of the previous five reports. So, there are bearish trends here.

With a positive inflection in YoY earnings expected in its upcoming release, the options market has priced in an elevated 7.2% earnings-related stock price swing when analyzing the at-the-money straddle expiring soonest after the reporting date. I would not buy premium at that lofty price, but selling puts at a key strike could be a play. Read on.

NOV: Mixed Earnings History, Somewhat Pricey Options

The Technical Take

With shares still a decent value in my eyes and option premium leaning expensive, I see support on the chart. Notice in the graph below that shares are near a key uptrend support line after falling below minor support near $19. I see the current $16 to $17 area as a potential bounce spot for the bulls, so selling a put at the $16 strike could be a play around earnings. As I mentioned in my October article , resistance is still key in the $24 to $25 zone.

NOV: Shares Nearing Uptrend Support

The Bottom Line

I continue to see NOV has undervalued, about 25% to the cheap side. With the stock near a key uptrend line ahead of earnings, but below mid-$20s resistance, I'm a buy on shares.

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