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On Jun 18, Zacks Investment Research upgraded offshore drilling equipment maker, Dril-Quip Inc. (DRQ - Analyst Report)  to a Zacks Rank #2 (Buy).

Why the Upgrade?

The operating environment and growth prospects seem bright for Dril-Quip, as reflected by the rising earnings estimates for this leading engineering company. Over the last 60 days, the Zacks Consensus Estimate for the second quarter of 2013 has increased 2.3% to 88 cents per share, while that for 2013 rose 2.73% to $3.76 per share.

The momentum has been strong since Dril-Quip released its first quarter earnings results on May 7. Earnings per share came in at 98 cents, exceeding the Zacks Consensus Estimate of 80 cents by 22.50% and improving 30.66% from 75 cents a year ago. The outperformance was mainly backed by growth in product and service revenues as demand for offshore equipment increased.

With respect to the earnings trend, Dril-Quip delivered positive earnings surprises in 3 of the last 4 quarters with an average beat of 7.02%. The long-term expected earnings and sales growth projections of 14.50% and 6.93%, respectively, are also fairly impressive.

Additionally, Dril-Quip’s first quarter backlog witnessed a 16% sequential as well as 45.8% year-over-year improvement. We also expect large orders in 2013 from the Gulf of Mexico and Brazil, with rising demand and activity level in these regions. This gives it the financial flexibility to take advantage of growth opportunities while returning capital to shareholders.

Other Stocks to Consider

There are certain other equipment makers in the energy sector that are worth considering. These include Natural Gas Services Group Inc. (NGS - Snapshot Report), Lufkin Industries Inc. and Technip Ads (TKPPY). All these stocks carry a Zacks Rank #2 (Buy).

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