Will Oil Service/Equipment See Increased M&A? Is Cameron (CAM) a Target?

The Oil Services (OIH) group has outperformed the market recently and Crude seems to magnet to the $100 level, buyers at $95 and sellers at $105. I would expect M&A in this group moving forward, as valuation is fair, and synergies can result in great cost-savings. It is also no secret that the large Exploration and Production companies are boosting CAPEX, and some may be interested in integrating a service Co.

In 2010, Schlumberger (SLB) made an $11B deal for Smith International (SII) and in 2009 Baker Hughes (BHI) made a $5.5B deal for BJ Services (BJS), so this is an industry that is consolidating. The Smith Int'l deal was done at a 37.5% premium and the BJ Services deal was done at a 16% premium. Halliburton (HAL) could be next to strike, the $45.9B Company.

On valuation, Complete Production (CPX), Helix Energy (HLX), and Superior Energy (SPN) are three smaller names (All Under $3B) that are attractive targets, but I am looking for a big deal in this group, and Cameron International (CAM) is the name I am looking at. Weatherford (WFT) is the long rumored buyout target with a $14.4B market cap, while National Oilwell Varco (NOV) is another potential suitor in this space.

Cameron International (CAM) is an $11.3B maker of Drilling & Production Systems. Shares trade 13.35X forward earnings, 1.8X sales and 2.45X book value. Cameron shares have come down from recent highs above $60 to $46 and are re-testing a major breakout level from last November, likely to base around this level.

Cameron (CAM) has caught my eye as 32,775 August $48 calls have accumulated in Open Interest, which began on May 26th when 16,000 were bought around $3.60, another 8,800 bought on May 31st around $3.40, and a block of 5,300 bought on June 2nd at $2.70.

That is a whole lot of money sitting in that contract looking for a move higher. Maybe it is just a technical or fundamental call, as I can see the bullish argument for both, but a large M&A deal in Oil Services also makes a lot of sense to me, with Halliburton the likely buyer, and likely a stock deal, which has been the norm in this industry.



Disclaimer: I am just speculating and stating facts and have no inside information