Cameron Gets Blowout Preventer Contract - Analyst Blog

On Mar 27, oil drilling equipment maker Cameron International Corporation CAM was awarded a contract to deliver a 25,000 psi blowout preventer stack and a 25,000 psi manifold to Freeport-McMoRan Oil & Gas. The market reacted favorably and the stock reached an intraday high of $61.85 before settling at $61.10 on Mar 27. Cameron's shares gained 0.59% on the next day to close at $61.46.

This order follows a similar blowout preventer that was delivered by Cameron to Freeport-McMoRan in 2011. The 13-5/8" 25,000 psi blowout preventer was the first in the industry and its success in the Gulf of Mexico led to this second contract. Freeport-McMoRan intends to use this new blowout preventer for some high pressure activity expected to commence in 2015.

Cameron, with a robust position in the ultra-high pressure space and a sound foothold in the emerging market, has already sold four 20,000-plus psi blowout preventers.

Houston, TX-based Cameron is a leading manufacturer of pressure control equipment used in onshore, offshore and subsea applications for oil and gas drilling, production and transmission.

Cameron's strong backlog provides ample visibility to its earnings growth and cash flow prospects going forward. Its existing backlog of around $11.5 billion shelters it in the current uncertain environment. With about two-thirds of its total revenue coming from outside North America, Cameron's international operations are expected to be key growth drivers going forward.

However, this substantial international exposure also poses risks for the company. Margins remain an issue in the compression business, given continued strength in material costs. Moreover, with markets remaining competitive and pricing likely to be weak, there is no obvious catalyst in Cameron's business to significantly push the stock price higher.

In keeping with these views, Cameron currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.

Meanwhile, one can consider better-ranked players in the energy sector such as Valero Energy Corporation VLO, Range Resources Corporation RRC and Patterson-UTI Energy Inc. PTEN, all of which currently sport a Zacks Rank #1 (Strong Buy).