On Jun 19, 2013, we retained our Neutral recommendation on oil
drilling equipment maker
Cameron International Corp.
). Our investment thesis is supported by a Zacks Rank #3 (Hold).
Why the Reiteration?
The company has a diversified product portfolio, specialty
service capabilities and proprietary technological expertise.
Other positives for Cameron include a strong backlog position,
growing international operations and a favorable outlook for
subsea activity levels.
However, we believe that Cameron's current valuation adequately
reflects its growth profile. Moreover, with markets remaining
competitive and pricing likely to be weak, we see no obvious
catalyst in Cameron's business to significantly push the stock
Houston, TX-based Cameron is a leading provider of underwater
pressure control, drilling and compression equipments to
operators globally. Its existing backlog of over $10 billion not
only reflects steady demand from its customers but also offers
long-term earnings and cash flow visibility.
With about two-thirds of its total revenue coming from outside
North America, Cameron's international operations are expected to
be a key growth driver going forward. Latin America, Asia Pacific
and the Middle East are the important markets in this regard.
Following the Gulf of Mexico oil spill incident, the company -
National Oilwell Varco Inc.
FMC Technologies Inc.
) as its competitors - continues to benefit from the near-term
requirements for better offshore safety equipments. Stricter
regulations on drilling have translated into enhanced
opportunities for equipment suppliers like Cameron.
However, shares of the company are fairly valued at current
levels, considering the sensitivity of Cameron's business to
gas/oil price volatility, as well as exploration and production
spending patterns, costs, geo-political risks, competition and
the advent of new technologies.
Moreover, the company used to be a leading supplier of subsea
production systems (Christmas trees), but lost market share to
competitors in the last few years. While the new order bookings
should help improve Cameron's market share position, we do not
expect it to attain its former leadership position.
Stocks That Warrant a Look
While we expect Cameron to perform in line with its peers and
industry levels in the coming months and advice investors to wait
for a better entry point before accumulating shares, one can look
Dawson Geophysical Co.
) as a good buying opportunity. This energy equipment service
provider - sporting a Zacks Rank #1 (Strong Buy) - has solid
secular growth stories with potential to rise significantly from
CAMERON INTL (CAM): Free Stock Analysis
DAWSON GEOPHYS (DWSN): Free Stock Analysis
FMC TECH INC (FTI): Free Stock Analysis
NATL OILWELL VR (NOV): Free Stock Analysis
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