3 Stocks With Strong Positive Sentiment

Includes: ACM, CAM, NFG
by: Oscar Sahlberg

Cameron International (NYSE:CAM): With its origins dating back to origin dates back to the mid-1800s, Cameron International provides flow equipment products, systems and services to worldwide oil, gas and process industries.

The company operates in three main business lines:

  1. Drilling & Production Systems which includes products that control pressures and direct flows of oil and gas wells,
  2. Valves & Measurement products that include equipment which control, direct and measure the flow of oil and gas as they are moved from individual wellheads through flow lines and
  3. Process and Compression Systems which help separate and treat impurities within oil and gas and compression equipment

The company has a market cap of $11.8 billion and negligible net debt. The company trades at 18x forward earnings and 1.7x sales vs. a projected revenue growth of 15% in 2012 and a 40% growth in EPS.

The analysts have a positive sentiment on the stock with a mean target of $68 as compared to the current stock price of $48, providing 40% appreciation potential for the stock. The analysts have taken a liking to the stock (evidenced by the recent target price hike by Credit Suisse) based on a multitude of factors. First, the positive order intake and backlog trends that the company has seen. The market continues to believe that the company will see backlog growth with improving margins. Second is the short term potential catalysts that include potential projects from BP's (NYSE:BP) West Nile Delta offshore Egypt, Apache's (NYSE:APA) Julimar offshore Australia and large Petrobras (NYSE:PBR) packages and over $1 billion of Brazilian FPSOs. With these rolling in, the company is potentially trading at a 12.5x 2012 earnings and 7x EV/EBITDA that is well below its historical ranges.

National Fuel Gas Co (NYSE:NFG): NFG is a diversified energy company that operates in four segments:

  1. Utility segment that sells natural gas to approximately 728,700 customers in western New York and northwestern Pennsylvania.
  2. Pipeline and Storage segment that provides interstate natural gas transportation and storage services
  3. Exploration and Production activities in California, Appalachia and in the Gulf of Mexico with proved developed and undeveloped reserves 45,239 Mbbl of oil and 428,413 MMcf of natural gas.
  4. Energy Marketing segment which markets natural gas

The company has a market cap of $4.75 billion and an enterprise value of $5.7 billion. The company trades at 18x 2012 earnings and 7.5x EV/EBITDA, offering a potential dividend yield of 2.5%.

The analysts have a positive sentiment on the stock with a mean target of $75 vs. the current stock price of $57.4, providing 39% appreciation potential for the stock. One of the most attractive aspects of the stock remains the solid balance sheet (~65% equity). The utility segment acts as a stable backdrop for the company and is also responsible for a good yield. Meanwhile a large (745,000 acres) and high quality footprint in Marcellus provides a large potential upside. Recent communication with the analyst community further abates E&P risk as the Company recently upgraded the typecurve for its Marcellus wells from 6Bcfe to 6.7Bcfe. The successful execution in its E&P business could see NAV as high as $91 according to Street estimates and can result in 15-20% EPS growth trajectory until 2015 due to higher production growth. Furthermore the company plans to enlarge the midstream business to support the E&P activities, which increases the upside expectations through further synergies.

Aecom Technology (NYSE:ACM): AECOM provides professional technical and management support services for a wide range of projects as well as program and facilities management services. The two main segments are

  1. Professional Technical Services segment delivers planning, consulting, architectural and engineering design, and program and construction management services in major end markets such as transportation, facilities, environmental, energy, water and government markets
  2. Management Support Services provides program and facilities management and maintenance, training, logistics, consulting, technical assistance and systems integration services.

The company has a market cap of $2.4 billion and an enterprise value of $3.3 billion. The company trades on 7x forward earnings and 7x forward EV/EBITDA.

The analysts put a median price target of $32.5 vs. the current stock price of $20.3, providing a whopping 60% appreciation potential for the stock. Despite deteriorating federal and state and local budgets, the main argument for the stock’s potential lies in the diversity of the company’s business model across geographies and funding sources. Company’s presence in high-growth international markets provides about 1/3 of consolidated revenue, and this segment is poised to grow further, believes the analysts. With US revenue standing at 42% in the latest quarter, and Western Europe limited at 10%, the research community’s view is that the market is too harsh in discounting a US slowdown on company’s prospects. Furthermore, history shows that a more highly indebted government and ensuing belt tightening contributed to wider adoption of P3 procurement model.

ACM is trading at a nearly 30% discount to the E&C company comps, the margin of safety seems too large for the company, resulting in a big mismatch in sentiment and share price. Furthermore, operationally, the company seems to be firing on all cylinders with 18% yoy backlog increase, best in 2 years, which puts the book-to-bill at 1.3x.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.