We continue to believe that Dril-Quip Inc. (DRQ) remains in a sound position on the back of the company’s strong leverage to continued strength in the deepwater drilling markets. Given the operators’ long-term view of these projects, deepwater drilling and other related services remain relatively stable through the usual fluctuations in commodity prices.
 
The company’s core products are key to its near-to-medium term growth amidst the challenging operating environment. We particularly like the company for its solid backlog and strong financial health, given an almost debt-free balance sheet.
 
The company is also seeing success from its new technologies such as liner hangers, subsea control systems and subsea manifolds. We see new products as the biggest potential to improve earnings in the future.
 
Dril-Quip enjoys a strong market share, with many of its established products enjoying a first or second position in its category. The company is looking to expand its market share in its growth products, which include both platform and subsea production trees.
 
This shift in product mix, coupled with rising material and labor costs, is expected to continue weighing on margins in the near to medium term. Despite these headwinds, Dril-Quip shares are not cheap by any conventional valuation metric. As such, we see limited upside from current levels and maintain our Neutral recommendation for the stock.
Read the full analyst report on “DRQ”
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