On Thursday, JPMorgan adjusted its financial outlook for NOV Inc. (NYSE: NOV) stock, reducing the energy equipment and services company's price target to $22 from the previous $23. Despite this change, the firm maintains an Overweight rating. The revision comes amid expectations of a downturn in North American activities which may impact the company's third-quarter profitability.
JPMorgan predicts that NOV's third-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) could reach the lower spectrum of the company's provided guidance, which ranges between $270 million and $305 million.
The firm's estimate of $270 million in EBITDA falls 4% below the street's estimate (STe) of $288 million. This anticipated decline is attributed to softer activity trends in North America, which have led to negative estimate revisions across JPMorgan's oilfield services (OFS) coverage.
NOV, which generates approximately 26% of its revenue from North American land activity, is expected to face headwinds that could affect its earnings in the second half of 2024. Consequently, JPMorgan anticipates NOV's full-year 2024 EBITDA to align with the lower end of the company's guidance, which is set between $1.10 billion and $1.18 billion.
Despite these challenges, JPMorgan forecasts resilience in NOV's order book, bolstered by robust international and offshore market fundamentals. The firm estimates $1.2 billion in total Energy Equipment orders for the second half of 2024, with a book-to-bill ratio of 1.05x. The projection includes $576 million in orders for the third quarter and $623 million for the fourth quarter.
During a recent non-deal roadshow, NOV's CEO Clay Williams and Amie D’ambrosio from the investor relations team conveyed management's confidence in the company's potential for modest growth in 2025. This optimism is supported by anticipated increases in offshore and international spending, which currently represent 44% and 62% of NOV's top-line mix, respectively.
In other recent news, NOV Inc. has secured a new $1.5 billion credit facility, replacing its previous $2 billion facility, with options to extend the maturity date and increase the borrowing limit. This development comes on the heels of the company's strong Q2 2024 financial performance, with revenues reaching $2.22 billion and a net income of $226 million. A 15% year-over-year increase in EBITDA to $281 million was also noted, despite a slight decline in North American sales.
TD Cowen has maintained a Buy rating on NOV Inc., raising the stock's price target to $28.00 from $27.00, citing the company's robust earnings, order intake, and free cash flow. The firm also suggested that the market might be underestimating NOV's potential.
NOV Inc. has been enhancing operational efficiency through AI technology and cost reduction initiatives, returning $67 million to shareholders and expanding its portfolio through the strategic acquisition of Keystone Tower Systems. The company anticipates a book-to-bill ratio greater than 1 for the latter half of 2024, driven by rising demand in offshore and international markets.
InvestingPro Insights
Recent InvestingPro data provides additional context to JPMorgan's analysis of NOV Inc. The company's P/E ratio of 6.01 and P/E ratio (adjusted) of 5.77 for the last twelve months as of Q2 2024 suggest that the stock may be undervalued relative to its earnings, aligning with JPMorgan's Overweight rating despite the lowered price target.
NOV's revenue growth of 11.0% over the last twelve months and EBITDA growth of 32.03% demonstrate the company's ability to expand its business, which could support management's confidence in modest growth for 2025. This growth potential is further reinforced by two key InvestingPro Tips: NOV operates with a moderate level of debt, and analysts predict the company will be profitable this year.
The current dividend yield of 1.86% and a 50.0% dividend growth rate in the last twelve months highlight NOV's commitment to shareholder returns, even as it navigates potential headwinds in North American activities. Investors seeking more comprehensive analysis can access additional InvestingPro Tips, with 6 tips available for NOV Inc.
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