DNOW Inc. (DNOW) stock intrinsic value fair value estimate & owner earnings analysis

DNOW distributes pipe, valves and fittings, pumps, gas products and maintenance supplies to oil and gas producers, pipelines, gas utilities, refiners and industrial plants, through segments in the United States, Canada and International. On November 6, 2025 it completed an all-stock merger with MRC Global (82 million new shares, plus repayment of about $643 million of MRC debt). The company now has about 186 million shares outstanding, against roughly 107 million before, and about $411 million of debt at year-end 2025. Because the business changed so much, the valuation below is per share on the enlarged share count. How we measured earnings. We start from operating cash flow, remove the swings from receivables, inventory and payables, and subtract stock compensation and the portion of capital spending needed just to keep the business running. On that basis the legacy DNOW earned about $0.05 per share in the 2020 trough, $0.45 in 2021, and $1.46, $1.53 and $1.47 in 2022 through 2024. Earlier years were $0.87 (2018) and $0.93 (2019). The middle of 2018 to 2024 is about $0.90 per share on the old share count, or roughly $97 million a year. We used that full-cycle figure rather than only the last three strong years, because this is an oil-and-gas-exposed distributor and 2020 showed how far earnings can fall. 2025 came out slightly negative (about minus $0.07 per share) because it carries about $40 million of merger costs and only two months of MRC Global. What MRC Global adds. The filing shows MRC contributed about $388 million of revenue in the two months after closing, and combined revenue would have been about $5.27 billion for 2025 on a full-year basis. But the company's own pro forma combined net income is only $10 million for 2025 and $17 million for 2024, after financing and acquisition accounting. That is too thin to credit MRC with meaningful earnings. We therefore credit MRC's contribution at roughly zero, and did not credit management's stated cost and cross-selling synergies, because the filing gives no quantified, contracted amount. On about 186 million shares, the legacy earning power works out to about $0.52 per share. Base case, $6 per share. Legacy DNOW earns its full-cycle level of about $97 million a year, MRC adds nothing net of its financing costs, and no growth is assumed. The 160-year distribution franchise and its roughly 300 locations are treated as sustaining that level for 20 years, then we stop crediting value. Growth in the last completed year is not applicable (owner earnings were negative), so year one starts flat. Bear case, $1 per share. Oil and gas activity weakens (U.S. active rigs already fell about 6% in 2025) and the legacy business returns to its 2020-2021 range, while MRC continues to consume cash after interest on the acquisition debt and amortization of $280 million of acquired customer relationships. Owner earnings of roughly $0.13 per share for ten years, then nothing. Bull case, $10 per share. Legacy DNOW holds the roughly $160 million a year it earned in each of 2022 through 2024, and MRC merely breaks even, giving about $0.86 per share for 20 years. We did not include a market recovery or margin expansion, because neither is something we can point to in the filings. What could prove this wrong. The main uncertainty is MRC: the MRC Global earnings level has to be inferred from one partial year and a pro forma figure, and MRC's U.S. ERP system is still being stabilized. If MRC earns near the legacy business's margin, value is closer to the bull case; if oil and gas spending falls or integration stumbles, closer to the bear case. Acquired inventory and receivables of about $1.5 billion also mean that working capital, which we excluded from earnings, is large relative to earnings. Because of the cyclical exposure, the newly enlarged and unproven combined business, and $411 million of debt, the margin-of-safety price is set wide, at about $3.30 per share, roughly 45% below the base case.