RBC Upgrades Cameron International On OneSubsea 'Game Changer'

In a report published Friday, RBC Capital analyst Kurt Hallead upgraded the rating on

from Sector Perform to Outperform, while raising the price target from $55 to $65. The analyst believes that the Surface and Subsea segments would drive healthy free cash flows through 2017. "We expect to see tangible integrated OneSubsea awards in 2H15 and ultimately still believe that the offering will increase recovery rates and lead to higher margins for CAM," analyst Hallead elaborated, while adding that there appears to be favorable customer acceptance of the business proposition. The analyst also believes that the performance of Cameron's legacy tree segment would help compensate for customer uptake of OneSubsea and help keep the orders flat year on year, at a minimum, even in the difficult commodity price environment. According to the RBC Capital report, "Spending in the international land market has held up better than any other sector during 2015, and we expect this market to be slightly up in 2016 even in a $65 oil price environment." According to the Q1 figures, about 60 percent of the company's business is in the international market, while Cameron continues to gain market share in the US, without having experienced "the same severity in pricing declines (20-25%) that other US focused service lines have experienced over the past 6 months," analyst Hallead stated. In addition, the analyst expects Cameron's Valve and Measurement business to see acceleration in orders in 2H15, with margin and revenue growth through 2017. "The collapse in the offshore drilling market should lead to declining Drilling segment revenue through 2017 as CAM works through its current backlog. However, we do expect after-market and land rig BOP orders to lead to very modest order growth in '16 and '17," analyst Hallead added. The EPS estimates for 2015, 2016 and 2017 have been raised from $2.89, $2.68 and $3.44 to $3.08, $3.01 and $3.95, respectively.