DNOW Inc. (DNOW): A Bull Case Theory

We came across a bullish thesis on DNOW Inc. on Valueinvestorsclub.com by rustler37. In this article, we will summarize the bulls’ thesis on DNOW. DNOW Inc.'s share was trading at $15.55 as of September 3^rd. DNOW’s trailing P/E was 20.46 according to Yahoo Finance.

The long-awaited merger of DNOW (DNOW) and MRC Global (MRC) is set to create the dominant industrial distributor across North America’s upstream, midstream, downstream, and related industrial markets. This all-stock transaction gives DNOW and MRC shareholders 57% and 43% of the combined company, respectively, with DNOW management running the business. The merger is expected to close in the fourth quarter, creating a $2.6 billion company with $200 million of net debt, which management plans to pay down over the next year.

The combined scale and complementary customer bases position the company to capitalize on growth in alternative energy, data center infrastructure, and mining, while realizing meaningful operational and purchasing synergies. Even under management’s conservative $70 million synergy estimate, the combined business trades at 6.6x EV/LTM EBITDA, a steep discount relative to peers, highlighting the investment opportunity.

Both companies have structurally improved over the past decade, shifting toward higher-margin products and integrated supply chain solutions. DNOW has evolved from part distribution to providing purpose-built solutions, while MRC reduced low-margin pipe revenues from ~40% to ~10% and expanded into the gas utility sector. Margins for both companies have stabilized in the 7%-8% range despite lower revenues, demonstrating the durability of their businesses. The merger leverages significant overlap in products, enhancing scale advantages with suppliers, while leaving the business conservatively leveraged and resilient to downturns.

The opportunity lies in cost synergies, potential revenue enhancements, and a highly cash-generative platform for M&A or share repurchases, with upside to private equity valuation multiples. Risks include macroeconomic sensitivity, oil patch efficiency gains, and typical merger integration challenges, but these are mitigated by the complementary nature and scale of the combined company. Overall, DNOW/MRC presents a compelling risk/reward profile with long-term structural growth and margin expansion potential.

Previously we covered a bullish thesis on Watsco, Inc. (WSO) by FluentInQuality in March 2025, which highlighted the company’s market leadership in HVAC/R distribution, recurring demand, technological innovation, and strong financial performance. The company's stock price has depreciated approximately by 20% since our coverage. The thesis still stands as Watsco continues to maintain its operational edge. Rustler37 shares a similar perspective but emphasizes the DNOW/MRC merger’s transformational impact on industrial distribution and scale synergies.

DNOW Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 27 hedge fund portfolios held DNOW at the end of the first quarter which was 26 in the previous quarter. While we acknowledge the potential of DNOW as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.