NOV’s Perspective in Q1: KEY Takeaways

This article on NOV will discuss the offshore prospects, the effects of the trade war, and whether a recovery awaits in the international market. It also discusses the US market outlook, the company’s Q1 segment performance, and the growth in its cash flows during Q1.

[ihc-hide-content ihc_mb_type="show" ihc_mb_who="10,13,14,16,18,19,20,21,22,23,24,25" ihc_mb_template="1"]

Assessing The Tariff Impact

We discussed our initial thoughts about NOV's (NOV) Q1 2025 performance in our short article a few days ago. This article will dive deeper into its current outlook and the industry. NOV's management has identified geopolitical and macroeconomic uncertainty and tariffs as the two key risks. These risks can affect its business in many ways. For example, the Downhole Tools segment has a diversified global supplier base and manufacturing sites.

If left on its own, the tariff can reduce the company’s EBITDA margin. Because a majority of Downhole Business's manufactured parts are sourced from outside the US, higher tariffs can affect the parts consumed for assembly and also the finished tools that are produced in the US and exported back to international markets. But the company realized the risks earlier and began taking actions to mitigate them. Since 2022, it has diversified its supply chains away from high-risk markets and encouraged existing suppliers to open manufacturing operations in lower-risk countries.

Backlog and Offshore Prospects

NOV's book-to-bill ratio increased to 1.22x in Q1 compared to 1.21x in Q4 2024. Its backlog has increased by 12% over the past year. However, heightened uncertainty and deteriorating market conditions can push some projects beyond the year. Its Q1 capital equipment backlog totaled $4.41 billion.

The deepwater drilling efficiency gains have been similar to the onshore efficiency gains in the US. NOV estimates that the drilling rates of high-spec seventh-generation rigs are 30% to 40% faster than a decade ago. The efficiency rise is a result of the combined use of control systems, automation, machine learning, and AI algorithms. Currently, the company is implementing 22 automation upgrades, including improvements in downhole broadband services and managed pressure drilling equipment.

Q2 Outlook

In Q2, NOV’s revenues and EBITDA can grow "modestly" compared to Q1. However, the growth can become more challenging to attend in 2H 2025. The emerging trade war and OPEC's decision to increase oil supply can disrupt the energy price balance and lead to lower oilfield services activities. Much of the risks are concentrated in North America onshore, Mexico, and Saudi Arabia’s conventional shales. On the other hand, international and offshore customers continue to grow in the Arabian Gulf, Brazil, Saudi Arabia's Jafurah gas field, and Argentina's Vaca Muerta region.

In this environment, NOV will focus on operational efficiencies and cost management. Revenues in the Energy Products and Services segment can decline by 5%-8% in Q2 compared to a year earlier. It can generate an EBITDA of $140 million and $160 million in Q2. The outlook for offshore production in 2025 remains robust.

In the Energy Equipment segment, revenues can remain flat in Q2 compared to a year earlier. This segment can generate an EBITDA of $155 million-$175 million. Overall, compared to Q2 2024, NOV’s revenue can decline by 1%-4%, while it can record an EBITDA of $250 million-$280 million.

Q1 Financial Results

In Q1 2025, both the Energy Equipment and Energy Products & Services segments witnessed a year-over-year revenue fall (2% and 3%, respectively). The Energy Equipment segment saw operating income rise (41% up) from Q1 2024 to Q1 2025. On the other hand, operating profit in the Energy Products and Services segment decreased by 31%.

NOV's cash flow from operations turned positive in Q1 2025 compared to a year earlier. FCF, too, turned positive in Q1. Debt-to-equity (0.27x) has remained nearly unchanged from a year earlier. The company repurchased 5.4 million shares in Q1.

Relative Valuation

NOV is currently trading at an EV/EBITDA multiple of 4.4x. Based on sell-side analysts' EBITDA estimates, the forward EV/EBITDA multiple is 5.7x. The current multiple is lower than its five-year average EV/EBITDA multiple of 16.8x.

NOV's forward EV/EBITDA multiple expansion versus the current EV/EBITDA contrasts its peers because its EBITDA is expected to decrease as opposed to a rise in EBITDA for its peers in the next year. This typically results in a much lower EV/EBITDA multiple than its peers. The stock's EV/EBITDA multiple is significantly lower than its peers' (CHX, FTI, and WHD) average. So, the stock is reasonably valued compared to its peers.

Final Commentary

NOV's management anticipates increased uncertainty following the tariff hike and deteriorating market conditions. The company has a diverse production and assembly line base that can partially offset the supply risks and the adverse effects of the tariffs. However, re-export of the finished products reinstates the effects and increases costs. Much of the risks are concentrated in North America onshore, Mexico, and Saudi Arabia’s conventional shales.

Internationally, the deepwater drilling efficiency gains can become NOV’s primary guiding force. It seeks to improve the downhole broadband services and Managed pressure drilling equipment. NOV's book-to-bill ratio increased marginally in Q1, indicating a recovery despite the pressure. Its free cash flow turned positive in Q1, allowing it to continue to repurchase shares. The stock is reasonably valued versus its peers.

Premium/Monthly ------------------------------------------------------------------------------------------------------------- [ihc-hide-content ihc_mb_type="show" ihc_mb_who="10,13,14,16,18,19,20,21,22,23,24,25" ihc_mb_template="1"] [/ihc-hide-content] [ump-visitor ] To unlock the content you need a Premium or Enterprise Account! [/ump-visitor]