We reaffirmed our Neutral recommendation on
) on Jun 18, 2013. The reiteration reflects its advantageous
position from increased deepwater activity in the near term,
recent capacity additions and a solid backlog. The company holds
a Zacks Rank #2, which is equivalent to a short-term Buy rating.
The offshore drilling equipment maker - Dril-Quip - is likely to
benefit from increased deepwater activity over the near term,
recent capacity additions in Brazil and Singapore, as well as
ongoing capacity expansions, over the coming years.
Dril-Quip's first quarter backlog witnessed a 16% sequential as
well as 45.8% year-over-year improvement. We also expect large
orders in 2013 from the Gulf of Mexico (GoM) and Brazil, with
growing demand and activity level in these regions. This gives it
the financial flexibility to take advantage of new growth
opportunities while returning capital to shareholders.
Dril-Quip registered an impressive gross margin increment both
for its product and services divisions. Installation and
maintenance work on subsea projects drove margins. Again,
Dril-Quip boasts an impressive balance sheet with effectively no
debt and ample free cash flow to fund capital spending.
The company results are heavily levered with continued strength
in global deepwater drilling markets, especially in South America
and the Asia-Pacific region. Given the operators' long-term
outlook on these projects, deepwater drilling and other related
services will remain relatively stable through the usual
fluctuations in commodity prices.
For the second quarter of 2013, the offshore drilling equipment
maker expects earnings between 80 cents and 90 cents per diluted
share, excluding any unusual or special charges. Currently, the
Zacks Consensus Estimates for the second quarter is projected at
88 cents per share, representing year-over-year growth of 19.5%.
Over the last 60 days, the stock has witnessed a positive
earnings momentum of 2 cents for the second quarter of 2013.
Additionally, based on improving market conditions, Dril-Quip
anticipates full-year adjusted earnings per share between $3.40
and $3.60, higher than its 2012 earnings per share of $2.94.
Other Stocks to Consider
While we remain mildly bullish over Dril-Quip, there are other
stocks in the sector that appear more rewarding. These include
Hornbeck Offshore Services, Inc.
Ferrellgas Partners LP
DRIL-QUIP INC (DRQ): Free Stock Analysis
ENERPLUS CORP (ERF): Free Stock Analysis
FERRELLGAS -LP (FGP): Free Stock Analysis
HORNBECK OFFSHR (HOS): Free Stock Analysis
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