Dril-Quip Stays Neutral - Analyst Blog
07 September 2011 - 3:59AM
Zacks
We are reiterating our long-term Neutral recommendation on
Dril-Quip Inc. (DRQ). The stock retains a Zacks #3
Rank – which translates into a Hold rating – for the short
term.
In the recently reported second quarter, Dril-Quip recorded
earnings of 55 cents per share, failing to match our expectation.
The company registered total revenue of $137.0 million, down 3.5%
from the year-ago level of $142.0 million. The underperformance was
mainly due to the decrease in sales of offshore rig equipment.
As of June 30, 2011, Dril-Quip had a backlog of $727 million
compared with $538 million at the end of the same period last year.
Although orders remain strong, higher engineering expenses and
testing of equipment prior to manufacture in a post-Macondo
environment is affecting the company’s ability to turn backlog into
revenues.
Management expects third quarter earnings to range between 50
cents and 60 cents per share, essentially flat with the recently
reported quarter. Given expectations for increased deepwater
activity over the near term and a record backlog, we expect the
company to outpace its profit growth guidance.
The planned investment of the Brazilian state-run energy giant
Petrobras in the country’s offshore market over the next five years
will likely prove beneficial for Dril-Quip, which is well
positioned to take advantage of the projects based on its strong
and long-standing relationship with Petrobras. As such, in the near
future, Drill-Quip remains well suited for Petrobras' planned 20
newbuilds and continued general secular growth.
However, with a major part of Dril-Quip’s company-wide operating
income being generated from the U.S. Gulf of Mexico (GoM) – through
sales of subsea wellheads, mudline suspension systems and subsea
production trees – we remain concerned about the aftermath of the
deepwater drilling moratorium in the region.
Further, a recent change in the sales mix has resulted in margin
deterioration for Drill-Quip, as more pipes and connectors are
being shipped relative to its higher margin deepwater subsea
wellheads.
Therefore, as of now, we don't see any obvious catalyst in its
business that would significantly push the stock price higher.
Consequently, we see Dril-Quip shares performing in line with the
broader market.
Dril-Quip faces tough competition from competitors like
Matrix Service Co. (MTRX) and CE Franklin
Ltd. (CFK).
CE FRANKLIN LTD (CFK): Free Stock Analysis Report
DRIL-QUIP INC (DRQ): Free Stock Analysis Report
MATRIX SERVICE (MTRX): Free Stock Analysis Report
Zacks Investment Research
CE Franklin (AMEX:CFK)
Historical Stock Chart
From Jun 2024 to Jul 2024
CE Franklin (AMEX:CFK)
Historical Stock Chart
From Jul 2023 to Jul 2024