CAM operates primarily as an equipment provider, offering systemic solutions to international oil and gas drilling firms. Comprising the list of available products are pressure control systems, valve and measurement equipment, and compression utilities customized for surface and sub-sea applications.
Perhaps the most remarkable aspect of CAM is its unique growth track, dating back to 1833 with the establishment of its predecessor, a small foundry in Mt. Vernon, Ohio. From the late 1800s through the present, the firm took shape with the establishment of a number of manufacturing affiliates operating under differing brand names. As of the start of 2007, CAM oversaw over 50 such brands, diversified across the categories of drilling and production systems, petreco process systems, valves and measurement, and compression systems.
As many people, from analysts to the MSM, have written that it is often the suppliers to the gold rush that reap the most profits, and CAM is a clear example.
With soaring demand for oil in the faster growing economies of China and India, CAM remains ideally placed with the scramble for increased production capacities. Central to this capacity growth is the development of new oil rigs to both supplement and replace those in existing fleets, a project for which CAM products are perfectly suited. The most recent quarterly results underscore this point with earnings per share nearly double those from the first quarter of 2006.
On a year-over-year basis, revenues rose 39.67%, with net income growth a stellar 81.98%. On average, less of this growth has been financed by debt, with a firm-wide debt to equity ratio of 43.42% relative to 63.00% for the industry. Profitability measures have also kept pace with this rapid expansion, as CAM has maintained a sound 9.90% ROA, and a ROE of 21.52%, which is in the top half of its industry.
At first glance, CAM may seem to be slightly overvalued with a trailing 12 month price to earnings (P/E) ratio of 22.18 compared to an industry average of 15.85. But, when factoring in earnings growth, it produces a trailing 12 month price to earnings to growth [PEG] ratio of 0.28, which, according to our calculations, reflects further upside potential. Our multi-factor models calculate a high probability of further benchmark beating returns. This, along with strong macroeconomic trends, points to Clear Asset Management maintaining our position in the stock.
Disclosure: Mr. Corn is CEO of Clear Indexes LLC and Clear Asset Management LLC. Cameron International Corporation (CAM) is a constituent in the Clear Mid Cap Growth Index licensed for the ETF [MCG]. It is also a holding in the Clear Mid Cap Growth portfolio.
Mr. Corn owns shares of the ETF: MCG, and shares of MTW directly through his participation in the portfolio.
CAM 1-yr chart