Smith International (SII) reported weaker-than-expected third quarter results, weighed down by a challenging North American natural gas market that contributed to continued pricing pressure within the domestic operations of the Distribution and Oilfield segments.
We believe that Smith will continue to struggle to leverage its international expansion to cross-sell its acquired W-H Energy product lines (mostly unconventional gas drilling). The W-H Energy acquisition has exhibited a materially different strategic outlook that has burdened returns in the interim for the prospects of growth.
Additionally, we expect margins to remain under pressure in the coming quarters, given an eroding pricing power. Our six-month target price is $23 per share.Zacks Investment Research
