This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Dril-Quip Is Great, but So Are the Expectations

Stocks in this article: NOV APC DRQ CAM GE

NEW YORK ( TheStreet) -- With the noticeable improvements in global energy spending, I've spent the past couple of weeks discussing the positive effects this has had on various oil/energy companies, like National Oilwell Varco (NOV), whose stock has reached new highs on the prospects of improved business conditions.

What's more, that Anadarko (APC) has enjoyed above-average gains over the past couple of weeks, despite litigation concerns, suggests that the Street has already priced in a full-blown energy recover. While I've remained gun-shy about chasing these offshore drilling giants, Dril-Quip (DRQ), on the other hand, despite its year-to-date gains of 55%, still seems attractive to me. And it's probably the best oil services company you never heard of.

When factoring share-price gains of 160% over the past three years, if I'm ever pressured to pick one word to describe Dril-Quip, that word would be "great." But the company's greatness has only been matched by the Street's expectations.

Even so, the difference is, unlike many of its rivals, Dril-Quip management, which has already raised guidance multiple times this year, has always delivered. It's true that at a P/E of 30, which is 6 points higher than its five-year average, this stock is not cheap. But with stronger-than-expected demand coming in from offshore energy development, not to mention the stabilizing of oil and gas prices, I still see ample opportunities here for investors looking to play an energy rebound.

Given the third-quarter results seen from Cameron International (CAM), including a 13% increase in revenues, not to mention a 50% jump in its backlog, Dril-Quip investors feared that Cameron had stolen market share and were chewing their nails in anticipation of what management's results were going to reveal. But as Dril-Quip has been known to do, it outperformed by every statistical measure.

Third-quarter revenues were up 18% year over year to $225 million, which outperformed Cameron's revenue results by 5%. What really caught my attention, though, was the 54% year-over-year jump in Dril-Quip's backlog. Now, given that I cited Cameron's 50% backlog increase as a defense against a couple of bearish attacks, it's only fair that Dril-Quip's backlog outperformance supports a bullish outlook.

And let's not forget, there was a point when the Street had raised concerns about Dril-Quip's business immediately after General Electric's (GE), with its deep pockets, entered the subsea energy equipment space. But these results demonstrate that not only can Dril-Quip co-exist among the titans, but it can actually beat them at their own game. And this is while it does things differently.

One thing that I've always appreciated about this company is its capital-preservation strategies, which includes acquiring second-hand/refurbished equipment. This is in lieu of leveraging the company to a high annual expense budget. In other words, management has never been impressed by "shiny and new." Profits and operational efficiency has always remained the focus.

With profits soaring 35% year over year, that degree of fiscal awareness certainly helped during the third quarter. And seeing no slowdown on orders, the company also raised its full-year earnings-per-share guidance to a range of $4.10 to $4.20. When coupled with the strong backlog, it certainly seems as if management expects to dominate this sector for the foreseeable future. This -- in my opinion -- should make Dril-Quip an attractive acquisition candidate for both Cameron and GE.

Now I do want to keep things in proper context. I realize that I've "gushed" over this company quite a bit. But it's not because I'm discounting the risks that exists here. From a valuation perspective, as I've said, these shares are not cheap. And we must not discount the likelihood that the oil/energy sector may take a bad turn, which I believe is highly unlikely at this point.

Nevertheless, the Street is involved, we never want to assume anything, much less for a commodity company that is leveraged to the growth in offshore drilling in an unstable oil and gas industry. For now, Dril-Quip's reputation as a strong offshore driller continues to manifest itself in the company's results. And until I seen meaningful signs of business erosion and weak margins, I believe these shares should reach $130 in the next six to 12 months.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,901.13 +96.33 0.54%
S&P 500 2,071.59 +0.94 0.05%
NASDAQ 4,771.9140 +6.5340 0.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs