Cameron International Corp Quarterly Valuation – June 2014 $CAM

Cameron_logoBenjamin 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 5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows.  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 specific look at how Cameron International (CAM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cameron International Corporation provides flow equipment products, systems and services to worldwide oil, gas and process industries. It operates in three business segments: Drilling and Production Systems, provides systems and equipment used to control pressures and direct flows of oil and gas wells; Valves & Measurement (V&M), provides valves and measurement systems used to control, direct and measure the flow of oil and gas as they are moved from individual wellheads through flow lines, gathering lines and transmission systems to refineries, petrochemical plants and industrial centers for processing, and Process & Compression Systems (PCS), provides standard and custom-engineered process packages for separation and treatment of impurities within oil and gas and compression equipment and aftermarket parts and services to the oil, gas and process industries. In June 2014, the Company sold Reciprocating Compression business to General Electric.

CAM Chart

CAM data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - FAIL
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $65.05
MG Value $51.18
MG Opinion Overvalued
Value Based on 3% Growth $44.46
Value Based on 0% Growth $26.06
Market-Implied Growth Rate 6.36%
NCAV -$3.68
PEmg 21.22
Current Ratio 1.77
PB Ratio 2.65

Balance Sheet – 3/31/2014

Current Assets $7,805,700,000
Current Liabilities $4,409,100,000
Total Debt $2,563,100,000
Total Assets $13,640,500,000
Intangible Assets $3,585,200,000
Total Liabilities $8,568,000,000
Outstanding Shares 207,000,000

Earnings Per Share

2014 (estimate) $3.80
2013 $2.87
2012 $3.02
2011 $2.09
2010 $2.27
2009 $2.15
2008 $2.60
2007 $2.16
2006 $1.36
2005 $0.76
2004 $0.44

Earnings Per Share – ModernGraham

2014 (estimate) $3.07
2013 $2.63
2012 $2.48
2011 $2.22
2010 $2.23
2009 $2.07

Conclusion:

Cameron International is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the low current ratio, the lack of dividend payments, and the high PEmg and PB ratios while the Enterprising Investor’s only concern is the lack of dividend payments.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of National Oilwell Varco (NOV) and ModernGraham’s valuation of Dover Corp (DOV).  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.23 in 2010 to only an estimated $3.07 in 2014.  This low level of demonstrated growth trails in comparison to the market’s implied estimate of 6.36% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the market price at this time.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cameron International (CAM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Be sure to review the previous ModernGraham Valuations of Cameron International (CAM)!

Disclaimer:  The author did not hold a position in Cameron International (CAM) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.


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