Cactus, Inc. ( WHD Quick Quote WHD - Free Report) is well-poised for growth on the back of highly-engineered product sales and increasing footprint in the international markets. However, conservative spending by clients remains a concern.
Headquartered in Houston, TX, Cactus is involved in manufacturing, designing and selling wellhead as well as pressure control equipment. The products are utilized by clients for drilling and completing onshore oil and natural gas wells. With a market cap of $2.5 billion, the company is engaged in creating long-term value for shareholders.
Which Way are Estimates Treading?
The Zacks Consensus Estimate for the partnership’s bottom line for third-quarter 2021 is pegged at 19 cents per share, indicating year-over-year growth of 46.2%. The bottom-line estimate has witnessed no movement in the past week. The consensus mark for the top line for the third quarter stands at $116.8 million, suggesting a rise of 95.4% year over year. Importantly, the company beat earnings estimates thrice in the last four quarters, missing on the other occasion, the average surprise being 140.8%.
Cactus currently has a Zacks Rank #3 (Hold). Let’s see what are the factors that substantiate this position.
What’s Favoring the Stock?
It shipped equipment tothe Middle East this January, which is expected to have driven the company’s momentum starting from the beginning of the year. It made an agreement with
National Energy Services Reunited Corp. ( NESR Quick Quote NESR - Free Report) to boost its presence in the Middle East and other locations. The deal to deploy its frac rental equipmentwillhelp the company increase revenues from the Rental business.
The company generates significant cash flow from selling and renting the wellhead and pressure control equipment. Its products like Cactus SafeDrill wellhead systems, SafeClamp, Safe Inject systems and others helped the company to keep generating positive free cash flows even amidthe coronavirus pandemicinduced volatility. In the trailing 12-month period, Cactus reported free cash flow (before dividends) of $78 million.
Cactus has a strong balance sheet and revealed that it has no bank debt outstanding as of Jun 30, 2021. At second quarter-end, the company had cash and cash equivalents of $309.1 million, up sequentially from $291.9 million. This providesit with immense financial flexibility.
What’s Weighing on It?
However, certain factors remain causes of concern.
Upstream companies are facing constant pressure from investors for higher returns instead of rapid production growth. These headwinds are keeping investments from explorers and producers low in the domestic market. Hence, conservative spending by clients and weak North American drilling are likely to hurt demand for the company’s oilfield services. As such, for 2021, it anticipates net capital expenditure to be$10-$15 million, reflectinga decrease from the 2020 level of $18.1 million.
With decreased demand for equipment and services amid ample supply, product pricing has become highly competitive. As a result, there is limited room for equipment providers to charge premium prices. Nevertheless, we believe that a systematic and strategic plan of action will drive its long-term growth.
Stocks to Consider
Some better-ranked stocks from the energy space include
Cheniere Energy, Inc. ( LNG Quick Quote LNG - Free Report) and Kinder Morgan , Inc. ( KMI Quick Quote KMI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
The Zacks Consensus Estimate for Cheniere Energy’s bottom line for 2021 is pegged at $2.98 per share, indicating a massive improvement from the year-ago loss of 34 cents.
Kinder Morgan’s bottom line for 2021 is expected to rise 47.7% year over year.