Deepwater And Saudi Activity Will Drive Recovery Amid Sector Crosscurrents

Key Takeaways

• Offshore energy expansion and global resource development are set to boost NOV's technology sales, supporting broad-based revenue and market share growth.
  
• Focus on automation, digital solutions, and cost optimizations is expected to drive sustained profitability and higher recurring earnings.
  
• Margin and revenue pressures from trade, inflation, weakened markets, volatile orders, and aggressive pricing threaten NOV's outlook, which hinges on expected overseas and offshore recovery.

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.

• Anticipated acceleration in offshore oil and gas activity beginning in 2026, with deepwater projects increasingly becoming the incremental source of global production, is expected to drive significant demand for NOV's high-spec drilling and production technologies-positioning the company for robust revenue and margin growth as project backlogs convert. (Revenue, net margins)
  
• The global rollout of unconventional resource development (outside North America) requires large-scale infrastructure and advanced drilling equipment, providing NOV with expanded market opportunities as international E&Ps replicate shale success, likely leading to higher equipment and aftermarket sales. (Revenue)
  
• Sustained investment in energy infrastructure, including LNG and gas processing driven by global energy security needs and rising energy demand in developing markets, supports long-term growth in NOV's composite pipe, process systems, and related offerings, enhancing recurring and project-based revenues. (Revenue)
  
• Ongoing digital transformation across the industry is increasing customer adoption of NOV's automation, robotics, and software-driven solutions, which grow high-margin, recurring revenue streams and are expected to support structural margin expansion over time. (Net margins, recurring earnings)
  
• Company-wide cost reduction initiatives, facility consolidation, process automation, and focus on high-value technology product lines are expected to remove $100 million in annualized costs by late 2026, improving operational leverage and profitability as the market recovers. (EBITDA margins, earnings)

NOV Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NOV's revenue will decrease by 0.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.4% today to 6.1% in 3 years time.
• Analysts expect earnings to reach $546.3 million (and earnings per share of $1.47) by about September 2028, up from $471.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $360 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.6x 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

• Ongoing and potentially rising tariffs, inflation, and trade policy uncertainty are putting sustained pressure on margins and may offset cost-cutting benefits, increasing the risk of further margin compression and negative operating leverage if global trade tensions persist or escalate (impact: net margins, earnings).
  
• Structural decline and volatility in key markets-particularly North American land drilling-are driving sharply lower aftermarket sales and capital equipment purchases, with customers delaying or reducing spending in response to macroeconomic and geopolitical uncertainties (impact: revenue, operating income).
  
• Customers are increasingly price sensitive, seeking cost reductions and using pricing concessions more aggressively, while some regions (e.g., Saudi Arabia, Latin America, North America) show declining or mixed activity, amplifying competitive pressure and challenging NOV's pricing power and volume growth (impact: revenue, net margins).
  
• Large, lumpy order cycles in critical business lines (such as Flexible Pipe) expose NOV to volatile bookings and revenue risk; delayed final investment decisions on major offshore and infrastructure projects due to supply chain disruptions, cost inflation, and macro market uncertainty may prolong order delays and affect backlog (impact: revenue, order backlog).
  
• The company's near
• and mid-term positive outlook is heavily reliant on an anticipated recovery in offshore and international unconventional activity in 2026, but any sustained weakness in commodity prices, slower-than-expected recovery, or acceleration of the global energy transition could undermine these assumptions and result in prolonged revenue and earnings headwinds (impact: revenue, earnings, long-term growth prospects).

Valuation

• The analysts have a consensus price target of $15.381 for NOV based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $9.0 billion, earnings will come to $546.3 million, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 8.5%.
• Given the current share price of $13.05, the analyst price target of $15.38 is 15.2% 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.