We have reaffirmed our Neutral recommendation on
) on January 8, 2013, reflecting its advantageous position from
the increased deepwater activity over the near term, recent
capacity additions and a solid backlog. However, we remain
concerned about the company-specific risks, which include new
product growth challenges, manufacturing difficulties and
potential backlog losses. The company holds a Zacks Rank #3,
which is equivalent to a short-term Hold rating.
CABOT OIL & GAS (COG): Free Stock Analysis
DRIL-QUIP INC (DRQ): Free Stock Analysis
ROYAL DTCH SH-A (RDS.A): Free Stock Analysis
SUNOCO LOGISTIC (SXL): Free Stock Analysis
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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.
The company is also pursuing several other large projects -
Royal Dutch Shell plc
) Malakai TLP project, off Malaysia as well as Woodside's TLP
projects in Australia. The award of these contracts is likely to
be announced in 2013.
Dril-Quip's backlog increased in the third quarter on a
sequential basis. The company also enjoys a favorable position
given its solid backlog, including a debt-free balance sheet. In
2013, we expect large orders from the Gulf of Mexico (GoM) and
Brazil, with rising 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.
For the fourth quarter of 2012, Dril-Quip expects earnings
between 65 cents and 75 cents per diluted share, excluding any
unusual or special charges. Currently, the Zacks Consensus
Estimates for the fourth quarter is projected at 74 cents per
share, representing a year-over-year slip of 4.2%. Over the last
60 days the stock has witnessed no earnings momentum for the
fourth quarter of 2012.
Additionally, based on improving market conditions, Dril-Quip
anticipates its full-year adjusted earnings per share between
$2.83 and $2.93, higher than its 2011 earnings per share of
However, in the third quarter, Dril-Quip's gross margin slipped,
primarily due to some negative shift in the mix from higher
project-related shipments as well as fairly lower absorption as
it ramps up capacity.
Additionally, delays in deepwater infrastructure awards may also
hinder the growth prospect of the company.
Other Stocks to Consider
While we prefer to remain on the sidelines for Dril-Quip, there
are other stocks in the sector that appear rewarding. These
Sunoco Logistics Partners L.P.
Cabot Oil & Gas Corp.
), which are expected to perform impressively over the next few
months and carries a Zacks Rank #1 (Strong Buy).