Cameron seen shaking "headline" risk of lost rig

By Braden Reddall – Analysis

SAN FRANCISCO (BestGrowthStock) – The fact that equipment made by Cameron International Corp is in the spotlight due to the Gulf of Mexico oil spill will mean hard months ahead for the company and its stock, which offers a chance to buy for the long term.

Analysts believe the oilfield services and equipment company, with a history stretching back more than a century, is strong enough to withstand the hit to its reputation.

Cameron supplied the blowout preventer for Transocean Ltd’s Deepwater Horizon rig, which sank two weeks ago at the start of one of the worst oil spills in U.S. history, and only formal investigations will make clear what happened.

John Tasdemir, oilfield services analyst at Canaccord Adams, said the stock sell-off was a case of shooting first and asking questions later, despite the lack of clarity on liability.

“When are they going to figure all that out?” he wondered. “It may even be years.”

Cameron’s stock, like Transocean and well operator BP Plc, has taken a serious hit already, down 17 percent since April 23, and that has prompted a few analysts to upgrade the stock to a “buy,” according to Thomson Reuters data.

While nine of the 27 analysts covering Cameron rate it a “hold”, that is down from 11 “holds” three months ago and has more to do with the deteriorating drilling prospects hanging over the industry due to the depressed price of natural gas.

REPUTATIONAL RISK

Cameron said last week on a conference call to discuss its first-quarter results that it had a $500 million liability policy to respond to claims over Horizon’s blowout preventer.

That revelation alone knocked Cameron’s shares down by as much as 22 percent at one point last Thursday, and analysts at Pritchard Capital Partners said the lack of further clarity from management was likely due to a confidentiality agreement.

Stephen Davis, a portfolio manager at Alpine Mutual Funds who does not own Cameron shares, said “reputational risk” was likely more of a problem for Cameron than liability, but it would be hard to quantify that right now.

“I would want to see some new awards in the next quarter just to see that they’re getting new business,” he said. “It’s going to be difficult on the liability side to make a case that Cameron has a real problem.”

Pritchard, which had downgraded Cameron last week due to “headline” risk, then upgraded it to a “buy” given that its liability for the 10-year-old blowout preventer, which was tested weekly, appeared to be limited.

“We do not believe the disaster will result in long-lasting reputational damage,” Pritchard said in a note, adding that on top of that, Cameron’s management could also buy back about 5 million shares to support the stock price.

There is growing regulatory and political risk from the spill, highlighted by Transocean saying on Wednesday there were several congressional subcommittees looking into it, along with the Homeland Security, Interior and Justice departments.

But increased regulation might even have a silver lining. Roger Read, oilfield services analyst at Natixis Bleichroeder, pointed out that the upshot of new regulations could translate into a requirement for rig operators to upgrade their blowout preventers, which would actually be a boost for Cameron.

According to Read: “When the smoke clears, buying Cameron on this weakness will result in a happy ending.”

Stock Research

(Reporting by Braden Reddall, with additional reporting by Matt Daily in New York; Editing by Richard Chang)

Cameron seen shaking “headline” risk of lost rig