Cameron International Corporation (CAM) is expected to release its third quarter results before the market opens on November 3. The Zacks Consensus Estimate for this stock is 53 cents per share. In the prior-year period, the company had reported earnings of 73 cents per share.

The Houston-based oilfield service firm reported earnings of 60 cents per share in the second quarter of 2009. This was above the Zacks Consensus Estimate of 47 cents per share despite slowdown in orders across all business lines. The company believed wider margins at its Drilling & Production Systems (DPS) segment helped it to top expectations.

The pace of new capital equipment orders for Cameron has remained sluggish over the last few quarters due to reduced exploration and development activity in the oil and gas industry. However, we believe that the company’s existing order backlog ($5 billion at the end of the second quarter) will support revenues for its DPS segment, which accounts for nearly 70% of its total sales. As such, we will not be surprised if Cameron reports better-than-expected results, yet again. We are also encouraged by Cameron’s recent $500 million subsea equipment deal with Brazilian state-owned energy company Petrobras (PBR).

Further, with about two-thirds of its total revenue coming from outside North America, Cameron’s international operations are expected to be a key growth driver for the firm going forward and will play an offsetting role for the relatively soft U.S. drilling scene.

Going by the recent economic optimism, we believe that the likelihood of recovery in 2010 is strong, which will improve demand for Cameron’s products and services. Consequently, we think that the company offers substantial upside potential from the current price levels (already up more than 85% year-to-date, compared with a 57% rise for the Philadelphia Stock Exchange oil service index). We therefore maintain our Outperform recommendation ahead of its third quarter results.

Houston, Texas-based Cameron International Corporation, previously known as Cooper Cameron Corporation, is a leading manufacturer of pressure control equipment used in onshore, offshore, and subsea applications for oil and gas drilling, production, and transmission.

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