Houston-based manufacturer, Dril-Quip Inc. DRQ recently announced its plans to acquire downhole equipment specialist TIW Corp. for total cash consideration of $143 million.
Notably, this would be the first ever purchase by the energy services company to broaden its product offerings. The deal is anticipated to close by the end of the year.
Dril-Quip manufactures highly engineered offshore drilling and production equipment for deepwater severe service applications and harsh environmental conditions. The company designs and manufactures subsea and surface wellheads, subsea and surface production trees, mudline hanger systems, specialty connectors, and associated pipe, drilling and production riser systems, wellhead connectors and diverters that are used on offshore rig equipment.
In 2016, TIW is estimated to generate revenues of about $60 million to $70 million. According to sources, in 2014 the company reported revenues of about $140 million. This is expected to increase to about $100 million by 2018.
We view Dril-Quip as an attractive long-term investment based on its highly advanced, engineered offshore drilling and production equipments. The company is also in excellent financial health with a sustainable free cash flow.
Notwithstanding the downturn in subsea drilling, Dril-Quip has been able to maintain impressive margins. The company, which boasts some of the best numbers for its class, reported better-than-expected gross margin in the last reported quarter.
Currently, Dril-Quip carries a Zacks Rank #5 (Strong Sell). Some better-ranked players from the energy sector include Enviva Partners, LP EVA, EQT Midstream Partners EQM and W&T Offshore WTI. Both these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Enviva Partners has a mixed earnings surprise history. The partnership posted positive earnings surprise in two of the last four quarters. It reported a positive earnings surprise of 20.51% in the preceding quarter.
In the last reported quarter, EQT Midstream Partners delivered a positive earnings surprise of 6.72%. Coming to the earnings surprise history, the company beat estimates in three of the last four quarters.
W&T Offshore posted a positive earnings surprise of 29.85% in the preceding quarter. It reported a positive earnings surprise in all of the four preceding quarters.
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