Cooper Cameron (IL/A): The right time in the cycle - Goldman Sachs - October 27, 2005
CAM's mix of businesses are moving into their collective sweet spot of the cycle:
(1) strong subsea backlog + outlook has enabled CAM to back away from lower prices needed to win XOM's Kizomba C tender (going to Vetco),
(2) increased rig newbuilding could result in a doubling of high margin drilling systems revenue by 2007, in our view,
(3) surface equip (high margins) drove stronger than expected 3Q EPS ($0.86 vs GS of $0.80) along w/ lower G&A,
(4) compression orders are rising w/ potential for 4Q margin surprise +
(5) pending Dresser valves acquisition has substantial potential synergies to augment the strong cyclical tailwind.
We are raising our 2005- 07 EPS estimates to $3.04/ $4.20/ $5.05 from $2.90/$3.88/ $4.80 and our fair value to $90 = +30% upside potential. Maintain IL/A rating as we still view valuation/ estimate revision combination as better for BHI, SLB, SII, DO + RIG.
3Q05 EPS AHEAD OF EXPECTATIONS
CAM 3Q2005 EPS of $0.86 beat our estimate + consensus of $0.80 due mainly to lower corporate expense. Revenue was in line as strength at Cameron (3.3% above) offset lower Valves (3.1% lower) and Compression (7.2% lower w/ some hurricane impact). EBITDA was 6% above our estimate due to lower corporate w/ Cameron division EBITDA 5% higher, partially offset by 3%/ 12% lower EBITDA vs our estimate for Valves + Compression. Management indicated that lower corporate is sustainable at slightly higher than 3Q levels. Orders continued very strong and nearly doubled year-over-year. Excluding the $350 mln Akpo order in 2Q, orders rose 17% sequentially w/ Cameron +21%.
I, Terry Darling, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
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Previous Goldman Sachs Notes on Cooper Cameron
Cooper Cameron (IL/A): Dresser valve acquisition positive long-term Goldman-Sachs September 06, 2005
Message 21679915
Cooper Cameron (IL/A): Just starting to fire on all cylinders Goldman Sachs July 21, 2005
Message 21530655
Cooper Cameron (IL/A): Turning the corner? Goldman Sachs May 30, 2005
Message 21372755
CAM (IL/A): Strong 1Q2005 EPS, raising estimates April 25, 2005
Message 21265274 |
