NOW Is Not The Time To Buy This Oil Stock

Although oil company NOW Inc DNOW has contained costs well, its revenue growth has not materialized as quickly or as meaningfully as expected, according to Susquehanna Financial Group. 

Acquisitions, new customer relationships and sharp acceleration in U.S. rig count and well completions haven't solved the revenue growth problem, analyst Charles Minervino said in a Thursday note. 

Susquehanna downgraded NOW from Positive to Neutral and lowered its price target from $19 to $11. 

At the time of writing, shares of NOW were sliding 2.96 percent to $10.82.

NOW reported third-quarter results before the open Wednesday, with an adjusted EPS loss of 3 cents and sales of $697 million against a $701.6 million estimate. 

In the wake of the quarterly results, Minervino said his reasonable baseline EBITDA forecast for 2018 is $80 million. Applying a 15x multiple, in line with the historical multiple of the shares, yielded an $11 price target, Minervino said. (See Minervino's track record here.) 

The revised price target does not possess enough upside to justify a Positive rating, the analyst said. 

NOW's third-quarter loss of 3 cents per share missed expectations for a loss of 1 cent per share, as slightly lower revenues and higher expenses offset a strong gross margin performance, according to Susquehanna. 

Geographically, the firm said U.S. revenues and operating margins underperformed, while Canadian and international results beat expectations. Susquehanna also noted that NOW's EBITDA of $5 million trailed its $8 million forecast.

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