NOV Earnings: Strong Margins in Energy Equipment Segment Propel Earnings Beat

NOV reported second-quarter results that topped PitchBook consensus, with earnings per share at $0.57 versus a $0.33 median expectation. This was due largely to the energy equipment segment, which was able to grow revenue while reducing costs, resulting in a 169-basis-point (10% versus 12%) and 1,100-basis-point (8% versus 19%) boost to adjusted EBITDA and operating margins from the prior quarter, respectively. The improved margins were the result of previously announced cost-saving measures and a more favorable product mix drawn from order backlogs. Our view is that margin outperformance is temporary and should give up most of these gains. After incorporating the quarterly results, we maintain our $22 fair value estimate and no-moat rating.