UPDATE: JPMorgan Downgrades Now Inc (DNOW) to Underweight
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JPMorgan analyst Sean Meakim downgraded Now Inc (NYSE: DNOW) from Neutral to Underweight with a price target of $5.00.
The analyst comments "We downgrade our rating on the shares of NOW Inc. (DNOW) to Underweight (from Neutral) and establish a Dec-2021 PT of $5 (from none prior). While we believe the company is well-positioned through the cycle, with an experienced (and upgraded) management team and solid idiosyncratic growth runway through broadened scope and share gain opportunities (via Process Solutions and Supply Chain), we think the stock’s current valuation more than reflects this. After a challenging few years of the industry downturn, coupled with a large integration, DNOW’s operational performance underwhelmed last cycle (cumulative negative EBITDA 2015-2019). That said, the company took notable steps forward in 2018-2020. With the recent pivot to working with the cycle we have v. the one we want, material progress has been made in reducing DNOW’s cost structure. Still, we believe more work remains to be done in order to align with the profit metrics of its main competitor. We believe the right deals (strategic fit and attractive valuation) could be viewed favorably (a risk to our Underweight rating), but we think current valuation still reflects aggressive organic growth and/or non-dilutive acquisitive growth v. its nearest comp. On our normalized analysis, we think an all-out bull case is necessitated (along with further cost rationing) to justify the shares on a FCF/EV yield basis. Thus we see risks to the shares as skewed to the downside."
Shares of Now Inc closed at $10.08 yesterday.
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