On Jan 7, Zacks Investment Research downgraded oil drilling equipment maker Cameron International Corp. (CAM) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
The ongoing crude price slump has impacted the oilfield machinery provider’s activity levels through receding orders. This is definitely going to have a near-term impact on Cameron’s earnings and cash flows.
Detailed Analysis
As crude gets deeply entrenched into a bearish territory and falls below the $50-a-barrel level following OPEC’s decision to hold production unchanged, the top energy companies are expected to cut spending (particularly on the costly upstream projects) on the back of lower profit margins. This, in turn, means less work for equipment suppliers like Cameron. Consequently, we see the company as a risky bet that ordinary investors should exit.
Cameron, once a leading supplier of subsea production systems (Christmas trees), has lost market share to competitors in the last few years. While the new order bookings are expected improve the company’s market share position, we do not expect it to attain its former leadership position.
Margins remain an issue in the compression business owing to continued strength in material costs. Moreover, the weak pricing scenario at present adds to the woes. If this trend continues, it could significantly affect the company’s performance in the near future.
Stocks That Warrant a Look
While we expect Cameron – which counts FMC Technologies Inc. (FTI) and National Oilwell Varco Inc. (NOV) as its competitors – to perform below its peers and industry levels in the coming months and see little reason for investors to own the stock, one can look at PowerSecure International Inc. (POWR). The company carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment