Offshore And Onshore Rig Activity Offers Upside At Cameron

| About: Cameron International (CAM)

Cameron International (NYSE:CAM) has traded sideways since summer. But following earnings next week the stock could be poised to move higher. Rig activity remains at its highest since the mid 1980s and offshore drilling continues to offer growth, particularly as activity accelerates in the Gulf of Mexico.

According to the Baker Hughes (NYSE:BHI) weekly rig count, 2,008 rigs were operating in the United States last week, which is 276 more than this time last year and 64 rigs higher than the average week in the third quarter. In the Gulf of Mexico, rig activity has quickly returned following a lifting of the permit moratorium last February. As of last week, 61% more rigs were operating in the Gulf than a year ago.

Horizontal exploration and production has been driving the growth, both in hard to tap shales and formerly forgotten Texas and Oklahoma oil fields. As of last week, horizontal activity was nearly 22% above this time last year.

Cameron, with exposure to both offshore and onshore markets, will continue to benefit - particularly if crude prices remain strong. In Q3, Cameron's revenue climbed 10% to $1.66 billion while earnings per share increased 22% to $0.78. Q3 bookings remained strong, rising 35% year-over-year. And the company's backlog stood at $5.8 billion at the end of the quarter. Q4's higher rig counts suggest results remained strong in the final quarter.

Rig utilization in the Gulf of Mexico has clawed its way back to 60% from 48% over the past year and with 74 floating rigs on order, and 24 expected into service this year, offshore activity is likely to remain strong. Offshore Brazil, where Petrobras (NYSE:PBR) tender activity is expected to reignite, West Africa, Australia and the Mediterranean will offer upside this year.

On shore, Cameron has eight business units focused both up and downstream. It's positioned itself nicely to benefit from ongoing Bakken, Eagle Ford, Permian Basin, Monterey and Missippippian Lime development. The surge in activity has bolstered aftermarket parts demand too. Last quarter, Cameron's aftermarket bookings were 70% higher than the prior year.

Investors worried lawsuits tied to Transocean's (NYSE:RIG) Deepwater Horizon, which had a Cameron blow-out-preventer, could derail earnings can breathe easier following last month's settlement with BP (NYSE:BP). The agreement indemnifies Cameron from additional charges. Of the $250 million Cameron agreed to pay, $170 million will likely be paid by insurers with the remainder taken as a Q4 charge.

As investors digest earnings, they tend to reward energy companies heading into spring. Over the past 10 years, the Market Vectors Oil Services ETF (NYSEARCA:OIH) has finished April higher than it starts February every year, which suggests now is a good time to be looking at stocks like Cameron.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CAM over the next 72 hours.