We continue to believe that Dril-Quip Inc. (DRQ) remains in a sound position on the back of the company’s strong leverage to continued strength in the deepwater drilling markets. Given the operators’ long-term view of these projects, deepwater drilling and other related services remain relatively stable through the usual fluctuations in commodity prices.

The company’s core products are key to its near-to-medium term growth amidst the challenging operating environment. We particularly like the company for its solid backlog and strong financial health, given an almost debt-free balance sheet.

The company is also seeing success from its new technologies such as liner hangers, subsea control systems and subsea manifolds. We see new products as the biggest potential to improve earnings in the future.

Dril-Quip enjoys a strong market share, with many of its established products enjoying a first or second position in its category. The company is looking to expand its market share in its growth products, which include both platform and subsea production trees.

This shift in product mix, coupled with rising material and labor costs, is expected to continue weighing on margins in the near to medium term. Despite these headwinds, Dril-Quip shares are not cheap by any conventional valuation metric. As such, we see limited upside from current levels and maintain our Neutral recommendation for the stock.

Zacks Investment Research

1. (DRQ) Dril-Quip Beats Expectations on Higher RevenuesDril-Quip Inc. (DRQ) reported third-quarter earnings of 72 cents per share, beating the Zacks Consensus...
2. ($ESV) ENSCO International Beats on Deepwater StrengthENSCO International Inc. (ESV) – a leading supplier of offshore contract drilling services to the...
3. (ESV) ENSCO International Launches Deepwater RigENSCO International Inc. (ESV) on Thursday announced the commencement of operations of its second ultra-deepwater...
4. (BP) BP Makes Huge New Deepwater Oil FindOil major BP Plc (BP) has made a huge oil discovery in the deepwater Gulf...
5. (RIG) Transocean Scores a New Deepwater ContractThe world’s largest offshore driller, Transocean Ltd. (RIG), bagged a 455-day contract for its ultra-deepwater...
6. (OIS) – Oil States Intl – Beat Wall Street Estimates by 15.46%Oil States International continues to take advantage of a hot energy market as it saw...

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