I, too, have been a bit concerned about NOV's rising debt levels. However, the company has reassured me that the debt level is where they want it. They claim to have been underleveraged until now, desiring a 50% debt/capital ratio as a target. The main reason for the debt is the acquisitions that the company has been making. Because the stock is too low to use for acquisitions, NOV has been using cash and notes. When the stock recovers to the high teens, they will use stock for more acquisitions.
The "strategic alternatives" statement, assuming something is actually accomplished, could bring great returns to shareholders. The company is worth much more than the stock's current value. Unfortunately, the cloud overhanging the contract rehab/long-term care business (40% of sales) is holding down the entire stock. The concern, as has been mentioned before, is the new Prospective Payment System for Medicare reimbursement. Several companies like NOV have had some difficulty planning for this change. NOV has taken the appropriate steps and appears to be ready. However, the stock won't go much higher until the market is certain that this business will grow.
By splitting the company into 2 (or more), NOV can separate its controversial long-term care business from its other businesses (O&P, outpatient PT, occupational health/integrated delivery systems). This way, the other businesses can get a much higher multiple (perhaps in the low 30s, due to their higher growth rate of 30-50%), while the slow-growing contract therapy/long-term care segment can keep the same multiple that NOV currently has, in the low-mid teens. This would yield a lot of upside to the current price of $12.5. That's why I bought more today.
Todd |
