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Gold/Mining/Energy : RON - Cooper Cameron -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (75)	2/15/2008 9:30:11 AM
From: Dennis Roth	Read Replies (1) \| Respond to of 77

Cameron International Corp. (CAM): Positive meeting with management; staying Neutral on valuation - Goldman Sachs - February 15, 2008 What's changed We recently met with Jack Moore, the incoming CEO for Cameron International. We came away from the meeting more confident in the upside potential for the subsea business, but more cautious on growth and margins in surface. We have made some adjustments to our model to account for these updated views. Our 2008-2009 EPS estimates are now 1% and 1% lower, to $2.49 and $2.96, to account for a reduction in our surface revenues forecasts. Our 2010 EPS estimate is 2% lower, to $3.25. Our 12-month price target of $45 (=18X 2008E EPS) is unchanged. Key takeaways from the meeting include: (1) Surface is no longer getting meaningful price increases, which is slowing the segment’s revenue growth and margin expansion potential. (2) The offset is that we believe Cameron will likely win Block 31 and Usan contracts, which is expected to come in 1H2008. (3) The revenue mix shift toward near-term lower-margin subsea is a trend that will make it difficult to grow margins materially. Implications We remain Neutral-rated on Cameron. We like the diversity of Cameron’s business, and we are confident that management’s strategy of focusing more on subsea positions it well for long-term secular trends. What tempers our enthusiasm is that Cameron’s largest business—surface (17% of 2007 revenues)—is becoming more competitive and pricing strength is moderating. We are concerned that this makes Cameron more reliant on winning additional subsea business to drive upside to EPS estimates. Valuation At 16.5X 2008 EPS, CAM trades at a 15% premium to the peer average, which we think adequately reflects the stability of the equipment business. Key risks Key risks include capacity additions, a sustained decline in commodity prices, and the continued broader stock market indices.