The execution of the spinoff also marks the end of Merrill ‘Pete’ Miller’s storied career at National Oilwell Varco. Mr. Miller handed over the reins to new CEO Clay Williams a little earlier than expected and Mr. Williams will now also assume Mr. Miller’s Executive Chairman role as well. Mr. Williams claims the move ‘demonstrates National Oilwell Varco’s commitment to provide long-term value to our stockholders’, but as we have previously noted, this spin is really a separation of ‘bad’, lower margin assets from the higher margin, ‘good’ assets. For additional information on the spinoff, check out the most recently amended Form 10 and all of our earlier coverage on the subject.
Barron’s had a pretty positive and informative piece on National Oilwell Varco a few months ago and suggests the company still has a lot of upside:
The spinoff could also help secure a valuation boost. National Oilwell will be left with higher profit margins right away, while DistributionNow will be able to gradually improve its margins as it builds more scale. BMO’s Laws has a one-year price target of $103 on the combined companies.
National Oilwell offers a modest stock valuation combined with solid growth potential—a combination that’s in dwindling supply at a time when the S&P 500 is reaching new highs while its underlying earnings growth slowed to just 4% last quarter. Meanwhile, rising bond yields threaten to be a drag on high-dividend stocks. But National Oilwell has a low enough dividend yield to dodge bond-related head winds in the near term, with the dividend-growth potential that could pay off for income investors in the long run. The company could double its payout from here and still have ample cash to reinvest in the business and make acquisitions.
NOV bulked up its distribution business through acquisitions a few years ago, so it will be interesting to see how their transaction valuations compare to DNOW’s trading multiples. Of course, given the index movement associated with this transaction, it wouldn’t be surprising for some forced selling to take place leading to a discount.
Disclosure: Author holds no position in any stock mentioned.
