+ Watch DRQ
on My Watchlist
The Company designs, manufactures, sells and services highly engineered offshore drilling and production equipment that is well suited for use in deepwater, harsh environment and severe service applications.
What's not to like? PE < 9, no debt, $110M in cash, ROE > 20%, profit margin > 20%, insider ownership > 22% and good liquidity. With oil & gas somewhat out of favor, the market falling to near 2002 lows, this seems like a good opportunity to take a stake in good growth company with solid fundamentals and good leadership.
The Gulf oil spill has hurt the stock, bringing it down from $70 to mid $40. I suspect the stock will be flat or down further from here until the BP turmoil quiets down a bit. Of course, since DRQ supplies BP with their proprietary Big Bore wellhead systems that are being used in the Gulf, they will take a nasty, muddy ride down in the gutter along with BP until this mess settles down, and that could take quite a while. In the meantime, this could be a good opportunity to add to the position. I also suspect this might make DRQ a target for acquisition, in fact there was an article on this yesterday, suggesting NOV has the cash, and DRQ would fill a nice niche for NOV. Since their CO-CEO, Gary Smith, passed away last September DRQ really haven't missed a beat. Their earnings and guidance continue to be in line with analyst estimates, and the 3-year deal with Petrobas in Brasil signed a year ago will bring them $180MM of revs. In addition, DRQ is building a new manufacturing facility in Singapore, which will likely enhance their ability to increase sales and penetration in the APAC region. I will be looking add shares at this level, but it could be bumpy for the next 6-9 months.
When you started this pick it may have been a bargain, but it's not now. PE is up to 25, so ending the pick looks like a good idea to me.
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