Shares of Cameron International Corp. (CAM) fell to a 52-week low of $42.04 on Jan 15. In fact, the Houston, TX-based oilfield machinery provider has seen its stock price plummet some 27% over the past three months. The freefall seems to be result of the ongoing crude price slump that has impacted the company’s activity levels through receding orders.
Why the Bearishness?
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.
As a result of these bearish factors, the tendency for a downward estimate revision has been more obvious in recent times. In fact, the Zacks Consensus Estimate for the fourth quarter has gone down 2 cents to $1.20 per share over the last 30 days.
Finally, in the wake of weak industry sentiment and apprehensions of more punishing times ahead with future cash flows drying up, Cameron’s current Zacks Rank #5 (Strong Sell) seems unlikely to change in the near-to-medium term.
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).
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