Digital And Renewable Trends Will Expand Market Opportunity

Key Takeaways

• Rapid digital adoption and offshore energy investments could drive significant margin expansion, recurring revenues, and outsized earnings growth beyond current expectations.
  
• Strategic moves in renewables, restructuring, and international markets position NOV for resilient top-line growth and long-term market leadership.
  
• Accelerating renewables transition, regulatory pressures, weak R&D, industry overcapacity, and cost inflation threaten NOV's long-term revenue, profitability, and competitive positioning.

Catalysts

Designs, constructs, manufactures, and sells systems, components, and products for oil and gas drilling and production, and industrial and renewable energy sectors in the United States and internationally.

• While analysts broadly agree that NOV's offshore and Energy Equipment backlog positions it well for margin recovery as conditions normalize, this likely understates upside-pent-up offshore FID demand, combined with years of capacity underinvestment, could produce an accelerated wave of high-margin orders by 2026–27, enabling an outsized rebound in revenues and EBITDA margins above prior cycle peaks.
  
• The analyst consensus sees international and unconventional markets steadily improving NOV's revenue mix, but this could prove conservative as rapid adoption of North American shale technologies in global basins triggers a large-scale, multi-year infrastructure buildout-significantly expanding NOV's total addressable market and delivering step changes in top-line growth.
  
• NOV's accelerating digital and automation product momentum-evidenced by rapid adoption of robotics, AI-enabled drilling optimization, and digital platforms-could create a high-margin, recurring software and aftermarket revenue stream that transforms earnings quality and boosts net margins substantially over the long term.
  
• The company's growing role in renewable and offshore wind infrastructure positions it as an early leader in the global energy transition equipment market, potentially unlocking a new, durable revenue stream that supports greater earnings resiliency and long-term margin expansion.
  
• NOV's sustained operational restructuring, aggressive cost-out actions, and consolidation efforts could drive structurally higher free cash flow conversion and permanently lower the company's cost base, setting the stage for exceptional earnings growth as the global energy cycle recovers.

NOV Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on NOV compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming NOV's revenue will grow by 1.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 5.4% today to 6.1% in 3 years time.
• The bullish analysts expect earnings to reach $565.5 million (and earnings per share of $1.43) by about September 2028, up from $471.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 14.3x on those 2028 earnings, up from 10.3x today. This future PE is lower than the current PE for the US Energy Services industry at 15.0x.
• Analysts expect the number of shares outstanding to decline by 4.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.53%, as per the Simply Wall St company report.

NOV Future Earnings Per Share Growth

Risks

• NOV's long-term addressable market is at risk of structural decline due to the accelerating global shift toward renewables and decarbonization, which will shrink demand for oilfield equipment and services and put sustained downward pressure on revenues in the coming years.
  
• Increasing regulatory and policy pressures-such as rising carbon taxes, mandatory emissions disclosures, and drilling restrictions-may make oil and gas operations costlier and less attractive, causing customers to limit capital spending on NOV's core offerings, thereby lowering future earnings and net margins.
  
• Persistent underinvestment in R&D and innovation relative to competitors poses the risk of NOV losing technology leadership, which could result in eroding market share and limit pricing power, ultimately constraining longer-term revenue and margin growth.
  
• Structural industry headwinds like overcapacity, heightened price competition due to sector contraction, and the bargaining power of consolidated oil majors and NOCs are driving margin compression; this is already evidenced by unfavorable sales mix and intensifying pricing pressure that have negatively impacted recent segment margins and are likely to persist.
  
• NOV faces significant cost inflation and escalating tariffs, with tariff expenses rising from $11 million to $25–$30 million quarterly and likely to offset savings from cost-reduction programs, which could erode net profitability and reduce the company's ability to convert earnings into free cash flow in a structurally challenging market.

Valuation

• The assumed bullish price target for NOV is $19.63, which represents two standard deviations above the consensus price target of $15.38. This valuation is based on what can be assumed as the expectations of NOV's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $20.0, and the most bearish reporting a price target of just $11.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $9.3 billion, earnings will come to $565.5 million, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 8.5%.
• Given the current share price of $13.05, the bullish analyst price target of $19.63 is 33.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.