Seeking Alpha: Cameron Coming Through In The Pinch

During this steep downturn in the energy space, Cameron (NYSE:CAM) has stepped up in terms of operating performance, market share, and order flow. That has not gone unnoticed, as the shares have sold off less sharply than those of National Oilwell Varco (NYSE:NOV), FMC Technologies (NYSE:FTI), Dril-Quip (NYSE:DRQ), and Forum Energy Technologies (NYSE:FET). Not only is the company's OneSubsea venture with Schlumberger (NYSE:SLB) really coming into its own, but also Cameron seems to be gaining share in markets like surface equipment.

Whether or not Cameron is a good stock to consider today depends in large part on your outlook for the energy sector. If you believe the major service companies that activity levels have bottomed in the North American onshore market and that the offshore markets will come back in another two or three years, Cameron should do well. I do believe that the next couple of years will be difficult in markets like drilling equipment, but modeling this as a three to four year recovery story still suggests upside toward $60 per share.

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Cameron Coming Through In The Pinch

Seeking Alpha: National Oilwell Varco May Be Undervalued, But It's A Long Road Back

National Oilwell Varco (NYSE:NOV) may well be undervalued, to begin with, but the company is looking at a rough road for several years. Offshore drilling companies have refreshed and renewed their fleets, and National Oilwell Varco was a major beneficiary of that trend, but the weak utilization of offshore rigs today and the poor prospects for a near-term turnaround in drilling plans (absent a sharp reversal in oil prices) seem to point to a long hangover for this leading equipment manufacturer.

I think companies with leverage to service (offshore or onshore) and subsea will recover more quickly, but National Oilwell Varco may have some appeal if you are exceptionally patient and/or believe that drilling activity is going to recover faster than most other analysts and investors expect today. I think multiple approaches support the idea that NOV shares should be trading in the low to mid-$50s, but I'm happier owning Cameron (NYSE:CAM) today.

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National Oilwell Varco May Be Undervalued, But It's A Long Road Back

Seeking Alpha: Surprisingly Strong Margins Bode Well For Cameron

Across the energy sector, companies, investors, and analysts are pretty much ensconced in their storm cellars and just waiting to see how bad things get before somebody blows an "all clear". To be sure, the results and industry commentary posted by the likes of Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL) has been consistent with a sharp pullback in North American onshore activity and a bleak outlook.

But that's not the totality of the story. Both Cameron (NYSE:CAM) and FMC Technologies (NYSE:FTI) reported relatively more positive prospects than expected, with subsea orders holding up better than expected. Although Cameron's drilling and valves segments have seen a sharp fall-off in activity, margins were notably stronger than expected and Cameron's diversified equipment model may help it steer through this downturn better than the Street presently expects.

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Surprisingly Strong Margins Bode Well For Cameron

Seeking Alpha: Cameron's Parting Shot Before The Deluge

"There's a storm comin'; You'd better run." Richard Hawley, There's A Storm a Comin'

Maybe the nicest thing to be said by oil/gas equipment company Cameron (NYSE:CAM) is that it has finally managed to get its house in order … right as a hurricane bears down on the sector. If investors are worried about the exposure of companies like Dover (NYSE:DOV) and Honeywell (NYSE:HON) to oil and gas production companies, you can probably imagine the concern for the equipment manufacturers like Cameron, National Oilwell Varco (NYSE:NOV), and FMC Technologies (NYSE:FTI).

Cameron serves customers across a range of markets and their exposures to oil/gas prices are not all the same. With that, the company is going to be delivering revenue out of its backlog in 2015 and likely doing so at decent margins. Offsetting that is the risk that the cycle could drop even further before reaching bottom and could take away Cameron's ability to grow earnings for two or more years. It's probably too early to start dumpster-diving (unless you expect a significant turnaround in oil prices over the next six to twelve months), but if you've held on to Cameron shares at this point, the best strategy may be to ride it out as the company has been gaining share in unconventional drilling and can still drive meaningful long-term value out of its OneSubsea JV with Schlumberger (NYSE:SLB).


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Cameron's Parting Shot Before The Deluge

Seeking Alpha: Cameron Showing Some Much-Anticipated Margin Progress

Owning Cameron (NYSE:CAM) shares hasn't always been the easiest investment play, as these shares have delivered plenty of volatility in response to order flow and margin progress (or lack thereof). Management dug itself into a hole on the margin side with inadequate production capacity, but that issue seems to be on its way to a strong resolution. Cameron has also regained a lot of momentum in the subsea market and the joint venture with Schlumberger (NYSE:SLB) should continue to pay off in opening doors to new business.

The issue with Cameron shares typically comes down to timing. Cameron should be looking at several years of good revenue and margin/FCF performance as it delivers on its large order book. At the same time, I believe we are looking at an extended cycle as more and more energy companies go offshore to find production growth. Discounted cash flow unsurprisingly isn't a lot of help, but the difference between a 9x and 10x EBITDA multiple on the shares swings the fair value by almost $9.

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Cameron Showing Some Much-Anticipated Margin Progress

Seeking Alpha: Dril-Quip Not So Cheap And Market Positioning Is A Question

This has been a weird stretch for energy equipment companies like Cameron (CAM), FMC Technologies (FTI), and Dril-Quip (DRQ) as investors reconcile the long-term offshore opportunities with short-term order volatility and periodic questions about the companies' ability to profitably manufacture and deliver those orders. Dril-Quip has proven itself over the long term as a high-quality operator, but I do have some concerns about whether the company is well-positioned for the short term. Combined with a valuation that doesn't strike me as particularly cheap, I can't work up a lot of enthusiasm for this stock.

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Dril-Quip Not So Cheap And Market Positioning Is A Question

The Motley Fool: Execution Key to Cameron International Corp Unlocking More Value

This looks to be an interesting year in the energy capital equipment space, as large E&P companies like Petrobras, Total, and BP look to move forward with ambitious plans to develop deepwater fields. While order growth may not be as strong for companies like Cameron (NYSE: CAM  ) , National Oilwell (NYSE: NOV  ) , FMC Technologies (NYSE: FTI  ) , General Electric, or Drill-Quip (NYSE: DRQ  ) , it is definitely an opportunity to execute and show operational excellence. In particular, Cameron needs to show that its $11 billion backlog can be successfully converted into higher-margin cash flows.

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Execution Key to Cameron International Corp Unlocking More Value

The Motley Fool: Cameron International Corporation Getting Its Act Together

Getting orders is one thing. Executing on those orders is a completely different thing, and an area where Cameron (NYSE: CAM  ) had been struggling for most of 2013. Three straight miss-and-lower quarters shook the Street's confidence in the ability of Cameron's management to execute, though the company's order book has remained quite strong.

Things appear to be finally starting to fall into place. The fourth quarter was a badly needed beat-and-raise quarter, and a slowdown in industry order growth in 2014 could actually be a good thing for the company as it tries to catch up on capacity. Valuation standards in this sector are notoriously loose, with EV/EBTIDA as the favored approach, but I would nevertheless argue that Cameron looks like a strong rebound trade in 2014.

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Cameron International Corporation Getting Its Act Together

Investopedia: Can National Oilwell Varco Win Back The Love?

It doesn't feel like it was all that long ago when National Oilwell Varco (NYSE:NOV) was a darling in the energy equipment space. Sure, there was always strong cyclicality to the business and the stock (as the multiples tend to expand and contract with the book-to-bill ratio), but this was one of the companies that consistently got above-average multiples and the benefit of the doubt.

Now, though, investors' enthusiasm has turned more toward those companies with bigger subsea and offshore surface exposure, companies like FMC Technologies (NYSE:FTI) and Cameron (NYSE:CAM) for instance. Although I don't want to suggest that investors should ignore the risks that National Oilwell Varco will struggle to improve margins, that the equipment cycle peak is in sight, and/or that the company will be challenged to expand into subsea and surface, today's discount to historical multiples and current rivals seems a bit overdone.

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Investopedia: Absent A Quick Turnaround In Power, GE Has Gone Far Enough For Now

General Electric (NYSE:GE) has been one of my go-to industrial stocks since around mid-2009, and the stock hasn't disappointed in that time – rising more than 140% and besting the return of the S&P 500 by about 30% or so. Companies and stock picks are always fluid, though, and the recent developments in GE's industrial margins and free cash flow (FCF) generation haven't been all that positive (particularly in power). While some of this is cyclicality and some is likely growing pains, a somewhat longer ramp back to strong operating performance leads me to think that GE is close to fair value absent a big turnaround in industrial demand and/or margins at GE.

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Investopedia: Dover's Opportunities Matched Only By Wall Street's Enthusiasm For Them

Any significant worries about a failure of the second half industrial recovery thesis seem to have been set aside for Dover (NYSE:DOV). With the company deciding to spinoff its Knowles electronic components business and outlining significant opportunities in markets like energy and refrigeration, analysts and investors are on board with the solid potential of this industrial conglomerate. Although Dover is by no means overvalued and should offer better growth than most of its peers, newcomers to the story may just want to wait in the hopes of a better entry price.

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Investopedia: Cameron - Come For The Orders, But Should You Stay For The Delivery?

Broadly defined, there are three primary ways to play energy cycles – exploration and production companies (ranging from tiny wildcatters to huge international behemoths), service companies, and equipment companies – and they all have their own cycles and quirks. In the case of equipment companies, it's often the case that the stocks make the biggest moves early in the cycle as orders are announced only to taper off as those orders actually turn into revenue and earnings. To that end, while Cameron (NYSE:CAM) appears to have meaningful untapped margin leverage, as well as significant revenue and cash flow growth prospects, it hasn't always been a smart move to hang around after the big order announcements.

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Invesotpedia: GE's Guidance Wasn't Great, But Expectations Seem Low

Many investors are desperately hanging on to the idea that the economy will spring back in the second half and validate the multiples in the market. When companies like General Electric (NYSE:GE) report earnings and give guidance that makes that second-half recovery look shakier, the stocks pay the price. While I understand short-term investors selling GE on disappointment over the company's outlook, the stock still seems too cheap from a long-term cash flow perspective.

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Investopedia: Dover May Be Bottoming, But The Street's Already Thinking Recovery

Dover (NYSE:DOV) is one of those industrial conglomerates that is so diversified, it's not hard to feel a little sympathy for the analysts that cover the stock. From energy to smartphones to commercial refrigerators and gas pumps, covers the gamut of end-market exposures.

To that end, it doesn't say anything especially great about the economy that first quarter results were pretty weak, though the book-to-bill and management's optimism about a second-half recovery are encouraging. When it comes to the stock, however, it's a little hard for me to believe that the Street hasn't already skipped ahead a few pages and priced this stock for a recovery.

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Seeking Alpha: Forum Energy Technologies Building A One-Stop Energy Shop

In recent years, major energy sector equipment manufacturers like Cameron (CAM), National Oilwell Varco (NOV), and FMC Technologies (FTI) have had to make way for new competitors. Most investors are probably already familiar with General Electric's (GE) ambitious growth in the offshore/subsea equipment sector, but Forum Energy Technologies (FET) may not be as familiar to readers. While there are certainly ample risks attendant with a debt-fueled roll-up strategy in a very cyclical industry, investors may want to get up to speed on a company that looks to offer a rare "soup to nuts" array of equipment and exposures in the energy space.

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Forum Energy Technologies Building A One-Stop Energy Shop

Investopedia: Are Good Orders Just The Beginning For Cameron?

Investors who want to get involved in the energy sector have to accept that a lot of the driving principles stand on pretty shaky ground. For instance, orders are often considerably more powerful in moving the stocks than actual revenues or margins, and despite its severe deficiencies, EBITDA is generally the favored valuation tool. As a result, talking about oil services company Cameron (NYSE:CAM) as a good or bad stock today depends a lot on what an investor chooses to value.

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Investopedia: Can Offshore Continue To Offset Weaker Onshore Trends At National Oilwell Varco?

With multiple reports in hand, it looks like a few themes have emerged in the energy equipment space. Order growth is fine, but margins have become more problematic. Given that orders tend to drive these stocks, that works out well for investors today. Still, investors considering National Oilwell Varco (NYSE:NOV) need to consider the opportunities in offshore in the context of challenging conditions in the onshore industry.

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Investopedia: The Market Is Already Expecting Big Things At Dril-Quip

There's ample business to come in offshore energy development, what with the huge discoveries of oil and gas in the waters off Brazil, and both East and West African countries. The question, however, is how much of that is already reflected in the valuation of equipment companies such as National Oilwell Varco (NYSE:NOV), Aker Solutions (OTC:AKKVF) and Dril-Quip (NYSE:DRQ). In the case of the latter, it looks like quite a lot.

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Investopedia: National Oilwell Varco Goes Back To The M&A Well In A Big Way

Energy service equipment giant National Oilwell Varco (NYSE:NOV) has never exactly been shy about doing deals, with six deals in the second quarter of 2012 alone, and the company announced another large plunge the morning of August 9. National Oilwell announced a friendly all-cash deal to acquire smaller equipment maker Robbins & Myers (NYSE:RBN) for $2.5 billion.

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Investopedia: Time For Cameron To Start Flexing

Cameron International (NYSE:CAM) has been a strong player in energy equipment for a while now, but new products for new markets may take the company to another level. While Cameron's relative popularity with the sell-side and institutions ups the risk a bit (it's hardly an undiscovered play), the company may be approaching a period of both expanding profits and expanding multiples.

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