DistributionNOW: Zacks’ Bear of the Day Play

With a comprehensive network of more than 270 branches and 60 supply chain locations worldwide, DistributionNOW (DNOWSnapshot Report)  is one of the largest distributors to the energy and industry. They support major land and offshore operations for key energy producing regions around the world.

DistributionNOW was spun off from National Oilwell Varco in May this year.

Disappointing Results

On August 6, the company reported its Q2 results.  Revenues for the quarter were $952 million, down 12% from Q1 and down 11% from the same quarter a year ago.  Net income for the quarter was $27 million, or $0.25 per share, compared to Q1 net income of $41 million, or $0.38 per share.

Results were much worse compared to the Zacks Consensus Estimate of $0.35 per share. According to the management, results were impacted by short term effects related to both an ERP implementation and spin-off activities coupled with the effects of a seasonal Canadian decline.

Downward Revisions

Analysts have been cutting their estimates for the company after quarterly results. Zacks Consensus Estimates for the current and next year are currently 1.36 per share and $1.76 per share respectively, down from $1.55 per share and $1.89 per share, 60 days ago.

Declining estimates sent the stock back to Zacks Rank # 5 last week.

The Bottom Line

With its leading position in a large and growing global market, DNOW may recover when its key end markets rebound. However as of now, declining energy prices and short-tem disruptions related to the spin-off continue to present headwinds for the stock.

The Zacks industry rank for “Oil Field-Machinery & Equipment” is currently 223 out of 265 (Bottom 16%), suggesting substantial weakness in the coming months.

Better Play in the Industry?

Investors seeking exposure to the industry could look at Powersecure International (POWR), which currently enjoys a Zacks Rank # 1 (Strong Buy). The company delivered a solid earnings beat for Q2. With its focus on its core business and operational improvements, it looks well positioned to reward its investors.
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