Near-term Outlook Positive for Cameron - Analyst Blog

Oil drilling equipment maker Cameron International Corp. (CAM) is scheduled to report its fourth-quarter results on Tuesday, Feb 9, 2010, before the start of trading.

The Zacks Consensus Estimate for Cameron's fourth quarter is 53 cents per share, compared to the 75 cents per share earned in year-earlier period.

The Houston-based oilfield service firm reported profit of 58 cents per share in the third quarter of 2009. This was 9.4% above the Zacks Consensus Estimate of 53 cents despite pricing pressure and reduced order flow. The company believed wider margins at its Drilling & Production Systems (DPS) segment helped it to top expectations.

The pace of new capital equipment orders for Cameron has remained sluggish over the last few quarters due to reduced exploration and development activity in the oil and gas industry. However, we believe that the company's existing order backlog ($5.1 billion at the end of the third quarter) will support revenues for its DPS segment, which accounts for nearly 70% of its total sales. As such, we will not be surprised if Cameron reports better-than-expected results, yet again. We are further encouraged by Cameron's recent subsea equipment deals with industry giants like Chevron (CVX) and Petrobras (PBR).

The overall trend in estimate revisions is also favorable. Though there were no estimate revisions in either direction over the last 7 days, two of the 20 analysts covering the stock have increased their fourth-quarter projections during the past month, with no downward revisions.

The company has a history of positive earnings surprises, surpassing the Zacks Consensus Estimate in each of the past four quarters. Cameron has performed consistently well during this period with its average earnings surprise being 10.0%. This implies that the company has beaten the Zacks Consensus Estimate by 10.0% over the last four quarters.

Further, with about two-thirds of its total revenue coming from outside North America, Cameron's international operations are expected to be a key growth driver for the firm going forward and will play an offsetting role for the relatively soft U.S. drilling scene.

Considering high chances of an outperformance, our short-term recommendation on the stock is Buy (Zacks #2 Rank), meaning that Cameron is expected to outperform relative to the overall market during the next 1-3 months. Our long-term recommendation continues to remain Neutral.

Read the full analyst report on "CAM"
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