Cameron International: What Does Management Think?



What does Cameron’s management think?

Cameron International’s (CAM) management thinks that its operating income margin in all segments will stay pressured in fiscal 4Q15. In the fiscal 3Q15 press release, Cameron CEO (chief executive officer) R. Scott Rowe commented that “although our operational improvements partially mitigated the third-quarter impact of the cyclical downturn, we have seen no easing of market pressures and – as a result – we expect operating income margins to decline sequentially in the fourth quarter in each of our four segments.”

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The company’s management also believes that its effort to reduce costs is an effective way to counter the energy market downturn. In the fiscal 3Q15 press release, the CEO also said that “despite the severity of the global downturn in energy markets, which has been especially pronounced in North America, Cameron reported very strong operating results in the third quarter of 2015. These results validate the journey we began in 2014 to reduce the company’s fundamental cost structure and improve execution across our four segments.”

Will a merger with Schlumberger help Cameron?

On August 26, the day Schlumberger announced its proposal to acquire Cameron, Cameron’s management expressed that integration with Schlumberger would be an efficient way to meet the current market challenges. Jack Moore, Cameron’s then-chairman and CEO, said in a press release that “upon closing this transaction, we will be better positioned to serve the changing needs of our customers around the world and help address the current market challenges that our customers are facing in today’s environment.”

Analysts’ targets for Cameron

Given the unpredictability of energy price recovery, Wall Street analysts have divergent opinions about Cameron’s target prices in the next 12 months. While the lowest target price is $60, the highest is $100. The median target price, according to sell-side analysts, is ~$75. Cameron is currently trading at $65, implying a 16% upside at its median price. Dril-Quip (DRQ), a smaller player in the oil field equipment and services industry, received a $69 median target price. This, relative to its current price of ~$60, implies a 14% upside. Cameron forms 1.6% of the Energy Select Sector SPDR ETF (XLE). Next, we’ll discuss Cameron’s revenue and earnings by segment.


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