Bank Of America analyst Chase Mulvehill upgraded NOV (NYSE:NOV) from Neutral to Buy with a price target of $19.

Key Takeaways: As NOV crushed earnings in the first half of 2022, management has guided the second half of 2022 adjusted EBITDA of 45% to 55% above the first half of the year levels.

Mulvehill expects NOV to continue to benefit from rising oil field services capex, better pricing/fixed cost absorption and easing supply chains.

NOV, formerly known as National Oilwell Varco, is a leading supplier of oil and gas drilling rig equipment and products, such as downhole tools, drill pipe, and well casing.

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The company is set to become debt neutral by year-end 2023, and Mulvehill reported that he expects some of the least downside in consensus estimates among its peers should a recession occur.

For the fiscal year 2022, the B of A analysts forecasted EBITDA to be $640 million, up 1% from the consensus estimates, with earnings per share of 69 cents per share, up 28% from consensus estimates.

Mulvehill explained that with stronger pricing in new orders and higher volume allowing for better cost absorption, the analyst expects NOV's CAPS' segment to achieve EBITDA margin growth to high single digits by the year end and closer to the 2018 to 2019 peak of 14% over the subsequent 1-2 years, assuming no major recession.

Additionally, NOV's Saudi rig manufacturing facility is ramping up and its offshore wind installation-related revenues are set to double to $400mm year-over-year.

The Bull Case: Mulvehill reported if this cycle proves to have legs, it's not unlikely for NOV's total EBITDA margins to get to 15% eventually, which would imply potential EBITDA in the range of $1.2 billion to 1.4 billion.

With greater than 60% of NOV's 2023 forecasted revenues set to come from relatively more stable international markets, and net debt expected to fall to below zero by year-end 2023, NOV is more defensive when compared to its peers, Mulvehill mentioned.

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Therefore, if a recession is avoided, which would likely provide upside to our new estimates, we think its likely that NOV would revisit returning cash to shareholders in 2023, said Mulvehill.
The analyst's full-year EBITDA guidance for 2023 and 2024 is forecasted at $898 million and $1.1 billion, up 1% and 8% from consensus estimates, respectively. Earnings per share are expected to be 13% and 11% above consensus estimates.

Competitor Buy Ratings: The analysts upgraded its price target on ChampionX (NASDAQ:CHX) to $22. The BofA analysts also issued Buy ratings for Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL)

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