Oil & Gas Stocks

Cameron International Company Valuation – May 2016 $CAM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cameron International Company (CAM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cameron International Corporation (Cameron), incorporated on November 10, 1994, provides flow equipment products, systems and services to worldwide oil, gas and process industries. The Company operates through four business segments: Subsea, Surface, Drilling and Valves & Measurement (V&M). The Subsea segment delivers integrated solutions, products, systems and services to the subsea oil and gas market, including integrated subsea production systems. Cameron’s Surface segment designs and manufactures wellhead and Christmas tree systemsfor onshore and offshore topside applications – from conventional to high-pressure, high temperature systems, to specialized systems for dry completions and heavy oil. The Drilling segment is a global supplier of integrated drilling systems. The V&M segment’s businesses provide valves and measurement systems. Its businesses serve portions of the upstream, midstream and downstream markets.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CAM – May 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $12,479,572,538 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.22 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 13.95% Fail
6. Moderate PEmg Ratio PEmg < 20 26.79 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.80 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.22 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.65 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

CAM value Chart May 2016

EPSmg $2.47
MG Growth Estimate -0.01%
MG Value $20.94
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $35.82
MG Value based on 0% Growth $21.00
Market Implied Growth Rate 9.14%
Current Price $66.16
% of Intrinsic Value 316.03%

Cameron International Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.47 in 2012 to an estimated $2.47 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.14% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Cameron International Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

CAM Charts May 2016

Net Current Asset Value (NCAV) $0.89
Graham Number $25.36
PEmg 26.79
Current Ratio 2.22
PB Ratio 2.80
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2015
Total Current Assets $7,118,000,000
Total Current Liabilities $3,206,000,000
Long-term Debt $2,542,000,000
Total Assets $11,500,000,000
Intangible Assets $2,346,000,000
Total Liabilities $6,946,000,000
Shares Outstanding (Diluted Average) 193,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.20
12/1/2015 $2.60
12/1/2014 $3.96
12/1/2013 $2.87
12/1/2012 $3.03
12/1/2011 $2.09
12/1/2010 $2.27
12/1/2009 $2.11
12/1/2008 $2.54
12/1/2007 $2.16
12/1/2006 $1.36
12/1/2005 $0.76
12/1/2004 $0.44
12/1/2003 $0.31
12/1/2002 $0.28
12/1/2001 $0.44
12/1/2000 $0.13
12/1/1999 $0.20
12/1/1998 $0.62
12/1/1997 $0.63
12/1/1996 $0.30

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.47
12/1/2015 $3.04
12/1/2014 $3.12
12/1/2013 $2.63
12/1/2012 $2.47
12/1/2011 $2.21
12/1/2010 $2.21
12/1/2009 $2.04
12/1/2008 $1.83
12/1/2007 $1.31
12/1/2006 $0.80
12/1/2005 $0.50
12/1/2004 $0.35
12/1/2003 $0.29
12/1/2002 $0.30
12/1/2001 $0.34
12/1/2000 $0.32

Recommended Reading:

Other ModernGraham posts about the company

Cameron International Company Analysis – September 2015 Update $CAM
Cameron International Analysis – June 2015 Update $CAM
24 Companies in the Spotlight This Week – 3/28/15
Cameron International Corporation Quarterly Valuation – March 2015 $CAM
27 Companies in the Spotlight This Week – 12/20/14

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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