On Sep 25, we issued an updated research report on Cameron International Corporation (CAM). The oil drilling equipment maker’s move to streamline business through the sale of non-core assets, and its impressive earnings growth prospects buoy up investor sentiment. The company also has a diversified product portfolio and strong backlog position. However, due to the weak commodity pricing scenario and persistent rise in material costs, Cameron’s margins could suffer.
This balanced view is reflected in Cameron’s Zacks Rank #3 (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market in the next one to three months.
Oilfield services companies have gained momentum and Cameron with its robust position in the market is set to benefit. The company’s strong backlog – over $11 billion – provides ample visibility for its earnings growth and cash flow prospects, going forward.
We appreciate the company’s growing international exposure. About two-thirds of Cameron’s total revenue comes from outside North America. Notably, the booming regions of Latin America, the Asia Pacific and Middle East constitute its key markets.
Last month, Cameron announced a deal with Ireland-based Ingersoll-Rand Plc (IR) for the sale of its Centrifugal Compression division. Also, earlier in the year, Cameron sold its Reciprocating Compression business to General Electric Co. (GE). These divestitures to streamline operations and focus on its core business of energy equipment supply should bode well for the company.
However, margins remain an issue in the compression business, given the continued rise in material costs. Moreover, weak pricing scenario is expected to result in a further cut in rig demand and dayrates, thereby compounding the woes for Cameron.
Additionally, Cameron has lost its position of the leading subsea production systems supplier to competitors. Though new order bookings should help improve its market share position, we do not expect the company to attain its former position in the near term.
Key Picks in the Industry
Currently, we prefer to remain at the periphery regarding Cameron and believe that shareholders should wait for a better entry point before accumulating shares.
However, one could consider better-ranked players from the same industry like PowerSecure International, Inc. (POWR), which sports a Zacks Rank #1 (Strong Buy).
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