Cameron International Corp. (CAM): Lowering estimates & target but outlook solid; Still Neutral-rated - Goldman Sachs - February 01, 2008
What's changed
We lowered our 2008 EPS estimate for Cameron by 5% to $2.53 following the 4Q results. Our new estimate includes only ~30 bps margin expansion in 2008, as we now expect a greater portion of Cameron’s revenue growth will come from lower margin business segments, like subsea and drilling. Our 12-month price target is lowered to $45 (17.8X 2008 P/E) from $47.50 due to the estimate revision. We also slightly lowered our 2009 and 2010 EPS estimates by 4% and 2% to $3.00 and $3.30.
Implications
As the first equipment company to report in the oil services group, Cameron’s lower-than expected 2008 guidance raises greater concern about late-cycle equipment companies yet to report – most notably FTI. Despite the lower-than-expected outlook, we like Cameron’s mix of subsea, surface, compression, and aftermarket businesses – all of which are well-positioned for multi-year growth. However, with the stock already trading at a substantial premium to the group (15.8X 2008 EPS vs. 13.0X), we think the stock is appropriately valued at these levels.
We see two catalysts for Cameron in the near-term:
(1) Block 31 is a 40 – 50 tree project in Angola, which is now expected to be announced in 1H08, and
(2) Usan, which is a separate 40 – 50 tree project in Nigeria and will likely be awarded in late 1Q08 or 2Q08. Cameron is well-positioned to win at least one, if not both of these contracts. We do not believe this is fully accounted for in 2009-2010 EPS estimates, although it is likely partially accounted for in the premium valuation.
Valuation
CAM is trading at 2008 P-E/EV-DACF of 15.8X/13.4X vs. 17.4X/13.9X for FTI.
Key risks
Weaker-than-expected global economic growth or lower-than-expected oil company spending internationally. |
