Energy services giant DNOW (NOW) has delivered a solid performance on both the top and bottom lines in the first quarter 2023. The company's strong growth is a result of the demand for its solutions and products, as well as continued mergers and purchases. It would be wise to consider investing in this fundamentally solid energy stock below $10. Continue reading ....
Energy services company NOW Inc. reported revenue and earnings that were better than expected in the first fiscal quarter 2023. The company is also well-positioned to grow substantially in the coming quarters due to strong demand, strategic partnerships, acquisitions and rapid expansion into key geographies.
This top energy stock is worth buying now, given its solid fundamentals and growth prospects. This article will cover several reasons for why I am very bullish on DNOW.
DNOW, with a market capitalization of $999.13 millions, is a global leader in energy and industrial products, solutions, and engineered package equipment. The company has a global network of over 20 locations and offers a suite of digital and online channels to serve the energy and industrial market.
Since DNOW's first spin in 2014 its core strategy has focused on driving growth through allocating capital to strategic channels, high-value product lines, solutions and geographies. The company has integrated 19 companies since 2014.
DNOW acquired EcoVapor Recovery Systems on February 16, 2023. DNOW will be able to offer its customers a suite of renewable energy and emissions management solutions that are targeted at the Oil and Gas and Renewable Natural Gas markets.
EcoVapor products are a great complement to DNOW U.S. Process Solutions is a suite of products that includes fabricated production and process equipment. This acquisition will boost the company’s growth and profitability.
The company's first quarter 2023 financial results were better than expected despite headwinds relating to bad weather, lower U.S. completions and rig counts, and weaker oil prices.
David Cherechinsky said that DNOW's CEO and President, David Cherechinsky stated, "Our year has started off nicely, with a strong top and bottom line performance. Revenue grew 7% sequentially and drove 8% EBITDA in the first quarter as a percentage of revenue."
During the third quarter, the international segment of the company posted a strong sequential revenue increase of 28 percent at levels operating that have not been seen since 2014. It also returned cash to its shareholders by repurchasing shares worth $36 million. DNOW is debt-free, has ample liquidity, and can use a variety of tools to further its market position.
DNOW shares have fallen 10.5% in the past month, closing the last session of trading at $9.34. Wall Street analysts, however, expect the stock price to reach $13.50 within the next few months, which would indicate a 44.5% potential increase.
What could affect DNOW's performance over the next few months?
DNOW's first-quarter revenue, which ended March 31st 2023, increased by 23.5% over the previous year to $564m, while its operating profit, at $35m, grew by 52.2%. Non-GAAP EBITDA, excluding other costs, was $47 million for the company. This is an increase of 67.9% over the previous year.
Non-GAAP earnings attributable by DNOW to stockholders excluding costs increased 78.6% over the past year to $0.25.
Incredible Historical Growth
DNOW's EBITDA grew at a CAGR of 54.4% over the last three years. The company's EBIT, as well as its normalized net profit, have also grown at CAGRs between 162,6% and 266,6% over the same period.
Favorable Analyst Estimates
Analysts predict that DNOW's revenues will increase by 11.2% to $2.38billion in the fiscal year which ends December 2023. Analysts expect the company's earnings per share (EPS) to increase by 9.5% over last year to $1.04. The company's revenue and EPS have exceeded the consensus estimates for all four quarters.
The consensus estimates of revenue and EPS of $2.46 Billion and $1.10 respectively for the fiscal year 2024 show an increase of 3.7% and 6% year-over year.
Value for Money
DNOW's forward non-GAAP PE is 9.09x. This is 45.1% below the industry average of 16.54x. The stock's forward EBITDA/EV ratio of 4.62x compares to the 10.39x average industry. Its forward EV/Sales is also 76.8% less than the 1.60x average. DNOW's price/sales ratio of 0.43x is also lower than the industry average 1.30x.
The POWR Ratings are promising
DNOW's overall rating is B. This equates to a Buy on our POWR Ratings System. POWR Ratings is calculated by weighing 118 factors to the optimal degree.
We also rate each stock according to eight different categories. DNOW's Value grade is B, which is consistent with the lower valuation of its peers. It also has a B-grade for Growth in line with its strong financials and optimistic estimates by analysts.
DNOW is ranked 5th out of 46 stocks within the Energy - Services B-rated industry. Click here to view DNOW's POWR ratings on Sentiment Quality and Momentum.
Here you can find the best stocks in the Energy-Services industry.
DNOW's top and bottom line performance was solid despite several headwinds. The company's diversified portfolio, which includes industry-leading products and services, strategic partnerships, and acquisitions, will also support continued growth over the next few quarters.
DNOW is a good energy stock to invest in now, given its solid financials and growth prospects.
DNOW has a POWR rating of B. This is equivalent to a Buy. Other stocks in the Energy - Services sector with an A rating (Strong buy) or B rating (Buy) include Technip Energies, North American Construction Group Ltd., and Ranger Energy Services, Inc.
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DNOW shares were unchanged during premarket trading on Wednesday. DNOW shares have declined by -26.46% year-to-date compared to a 7.86% increase in the benchmark S&P 500 Index during the same time period.
Mangeet K. Bouns
Mangeet became a financial journalist and investment researcher because of her keen interest in the stock markets. Mangeet uses her fundamental approach for analyzing stocks to help investors make informed decisions.