Dresser-Rand Group, Inc. (DRC)

DFA50CS CAPS=4S

Joel Greenblatt Pick

Screened some Magic Formula stocks through my brain and ended up with 10 new picks.

contr screen

caps 5, stockscouter10

Meets my screen. CAPS community loves this stock. It's a leader in the Energy Equipment and Services industry. Great year over year revenue growth, low debt to equity, and great return on equity.

Mmm...oil...

smart ppl , hot market for oil stays + a hot employee I know lol

Top and bottom line growth is very good. ROE is 25% vs ind. 7.

Revised earnings estimates up for the coming year. P/E of 10.7 higher than ind. is justified by 5 yr sales growth rate of 70% vs ind 9%. One year 36% vs 6%.

Low relative PE, good star ranking, PEG & 09 PE still below normal - bottom fishing.

Magic Formula, dollar has rallied, but won't be sustained, Agriculture = Inflation hedge

Agree with DL Smith, 'Promising Under the Radar Energy Play', 18-Jul-08. Oil and GAS, solid service provider.

This is a Fooligan pick (we are still doing that, right?) based on the Tim Beyers article.

Dresser Rand makes pumps, compressors and other rotating machinery for oil, gas, refining, petrochemical and process industries. As of 13 Jun 08, the company has a market cap of $3.5 billion, trades at 15.4 times analysts’ 2009 estimates, has 370 million in debt, 260 million in cash and an estimated 5-year growth rate of 29%. The company doesn’t pay a dividend.

According to the latest earnings transcript the company has a $2.1 billion order backlog. They also have a $150 million buyback authorized; that would be over 4% of the float if exercised at Friday’s closing price.

During the earnings call, the company stated that the refinery business is good. Despite US refineries scaling back expansion plans, they are upgrading to handle heavier or high sulfur crude oil. And, overseas refinery equipment orders are strong. “So, maybe there is a bit of a slowdown in the U.S. refining, but I can tell you that on a worldwide basis, there is a heck of a lot of activity.” according to Mark E. Baldwin, Executive Vice President and Chief Financial Officer. Strong worldwide refinery business is consistent with statements made during Graham Corp's conference call as well.

President and CEO Vincent Volpe stated, “We continue to believe that our 2008 operating income will be in the range of $285 million to $315 million.”

Mr. Volpe made an interesting comment concerning R&D efforts to improve the ability of pumps to handle mixed gas and liquid flows. “So, I would say that we are ahead of the game, not behind the game and we're ahead of it with what I believe is leapfrog technology, which we've patented.” I’m not sure exactly how much that benefits oil extraction, but at $130+ a barrel, anything that makes extracting crude more efficient would certainly be appealing.

In summary, very reasonable PE, strong order backlog and a customer base covering the upstream and downstream of the oil and gas industry.

PRODUCTS WILL BE IN DEMAND

The reason I first heard about DRC, was looking over T. Boone Picken's portfolio. He has been legendary with respect to oil and gas prices, and what companies will do well because of changes within the sector. This company makes rotating equipment for the oil and gas industry and its current earnings are very bullish with respect to their stock price. Even after the 9% pop in this stock it looks like a good investment as its chart suddenly turned bullish.

DRC beat earnings estimates by more than 13% by beating $.23 by $.03. Net income almost doubled year over year from $15 million to $27 million. First quarter revenues increased 16%, total bookings increased 35% and bookings were up over 50%. Bookings in the first quarter of 2007 were $425 million and this past quarter had $575 million. Revenues increased year over year from $314 to $363.

DRC operates in two divisions, the first is their new... More The reason I first heard about DRC, was looking over T. Boone Picken's portfolio. He has been legendary with respect to oil and gas prices, and what companies will do well because of changes within the sector. This company makes rotating equipment for the oil and gas industry and its current earnings are very bullish with respect to their stock price. Even after the 9% pop in this stock it looks like a good investment as its chart suddenly turned bullish.

DRC beat earnings estimates by more than 13% by beating $.23 by $.03. Net income almost doubled year over year from $15 million to $27 million. First quarter revenues increased 16%, total bookings increased 35% and bookings were up over 50%. Bookings in the first quarter of 2007 were $425 million and this past quarter had $575 million. Revenues increased year over year from $314 to $363.

DRC operates in two divisions, the first is their new components division and the second is after market parts and services. New unit revenues were $149 million vs. $114 million year over year. New unit operating income doubled. Operating margin increased by 2.2%. Bookings increased 44% year over year. They have a new record backlog up 61% to $1.7 billion.

After market parts and service revenues were up 7% year over year and account for approximately 60% for the company. Aftermarket was fairly consistent year over year but I would guess that would increase as they have had such a high demand for new equipment. Aftermarket backlog was up 24%.

Looking forward this company will continue to see strong demand as a third of their backlog will be delivered next year or later. Looking at the chart, they recently broke through their 50 and 100 day moving averages on high volume. This indicates a bullish chart. On April 30th there was a double top breakout. This chart reads as a traditional three box reversal chart. As per this chart, the stock looks to have a $54 price target. If you are looking more short term, this stock will find most of its resistance at $40. Anywhere up until that point this stock is a buy.

There are many reasons to be bullish this stock. The first is that they are currently buying 5% or $150 million of company stock. Although the company trades at a PE of 28, the forward PE is 14. This is important as the company has huge growth going forward and like I said a third of it is guaranteed for the rest of the year. I believe they will continue to improve on getting their products delivered as that has been a concern for the company as they are knee deep in work. I believe their earnings will come in at around 2.11 per share. If this is the case and a PE of 26 is used which seems proper as that is their estimated growth for next year, so the stock could sell for $54 by year end.

I'm hoping that the market position of this excellent corporation and the very high global demand will justify the price.

Earning are good,steadily increasing over time. P/E is a bit high though.

One word Morphware