Capital One Southcoast Reiterates a 'Neutral' rating on Dril-Quip (DRQ); Adjusts PT & Estimates

November 9, 2009 10:37 AM EST

Capital One Southcoast reiterates a 'Neutral' rating on Dril-Quip (NYSE: DRQ), price target increased from $50 to $53.

Capital One analyst says, "Action: 4Q09/'10/'11 upped to $0.70/$2.77/$3.12 from $0.65/$2.65/$3.03 w/ a little more optimism on the gross margin line (albeit still anticipating declines through 1H10) and an assumed improvement in underlying base order flow given the slight upside to 3Q bookings."

"Our take: Surprisingly up seq margins drove 3Q upside, while bookings were down, but a little more resilient than our expectations. While the weight of lower-priced backlog is still expected to flow through, DRQ continues to hold the margin line well (we're still modeling gross margins bottoming out ~40%-41% in mid-'10). DRQ continues to focus on facility expansion w/ Singapore getting ramped up on the construction front through '10--mgt commented that total co CAPEX in '10 should be toward the high end of $50MM-$60MM driven by the capacity add vs ~$50MM in '09. We expected a slower bookings qtr ramping down from the recent momentum from call-offs on the BP and PBR wellhead frames, but the 3Q posting was encouragingly higher (we'd modeled inbounds ~$100MM and w/ commentary that there were no significant riser bookings or further wellhead frame call-offs in 3Q, it makes us inclined to increase this base level going fwd a bit--modeling overall orders still up ~15%-20% in '10 and '11 w/ these favorable trends and the increased capacity). Still feel transitional concerns/M&A rhetoric overblown (Larry Reimert and Mike Walker splitting up Gary Smith's duties w/ Larry taking more of a sales/mkting lead), and DRQ will continue to do what it always does, which is execute well. Nonetheless, also still feel we're valuation constrained w/ fair value in the low-mid $50s and a lot of premium multiple credit already being extended."

To see more analyst ratings on DRQ Click Here.

Dril-Quip, Inc. (Dril-Quip) designs, manufactures, sells and services engineered offshore drilling and production equipment for use in deepwater, harsh environment and service applications.

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