Don't Ignore This National Oilwell Varco Rival

Now that I've gotten your attention with the headline, let me note quickly that I don't consider National Oilwell Varco (NYSE: NOV  ) and Cameron International (NYSE: CAM  ) to be head-to-head competitors.

Oh, sure, there is some overlap. In reality, however, companies with duplicate product and service offerings are a rarity in the oil-field services contingent. For instance, Schlumberger (NYSE: SLB  ) and Halliburton (NYSE: HAL  ) are frequently mentioned in the same sentence, mostly because they are the two biggest members of the group. But while the two compete to some extent, they are different in many respects.

Benefits from being all wet
While what I'll simply call Varco does provide oil-field tubular goods (piping, casing, tubing, etc.), which often find application offshore, the real attractiveness of the company lies in its offering of rigs and components to flush out its drilling capability. In contrast, Cameron provides a range of flow- and pressure-control equipment, among other things. Its story becomes more compelling, however, when you see that a lot of its repertoire sits on the sea floor, including blowout preventers (BOPs) and -- in an area that's becoming significantly more important with the movement of energy operations into deeper waters -- subsea systems and equipment.

A major venture
In the latter area, it's noteworthy that Cameron and Schlumberger have just announced the formation of a joint venture that will be tasked with manufacturing products and systems for the subsea oil and gas markets. The venture, which is being dubbed OneSubsea, will be 60% owned by Cameron, with the rest held by Schlumberger. Under the terms of the agreement, Cameron will contribute its existing subsea division, and will receive $600 million from Schlumberger. The bigger company will add its Framo, surveillance, flow assurance, and power and controls businesses to the venture.

I consider the announced venture to constitute a significant plus for Cameron, albeit one that still must pass regulatory muster. It follows a disclosure that the company has entered into a new $100 million contract with BP (NYSE: BP  ) for the provision of maintenance services and equipment at the giant Rumaila field in Iraq.

Absolved, by golly
The latter pact is hardly Cameron's initial experience working with the London-based company. You'll recall that a BOP was in service on Transocean's (NYSE: RIG  ) Deepwater Horizon rig at the time of the 2010 explosion and fire aboard the unit -- and the resulting 4.9 million-barrel Gulf of Mexico spill. A year ago, Cameron absolved itself of future liabilities relating to the tragedy by paying BP, the operator on the Macondo well, $250 million. In return it received indemnification from BP against all potential compensatory damages related to the tragedy.

As a longtime aficionado of the oil-field services sector, I find Cameron's historic growth to constitute a fascinating progression. While I won't detail that history here, it's nevertheless worth noting that present-day Cameron includes among its corporate progenitors such iconic -- at least in the service industry -- and technologically innovative names as Cooper Industries, Cameron Iron Works, Dresser, and the NATCO Group. Indeed, the Cooper portion of its heritage dates back to 1833.

As with a number of services providers, including Schlumberger, Baker Hughes (NYSE: BHI  ) , and National Oilwell Varco, Cameron -- on Halloween, no less -- warned that, rather than the $1.08 in per-share earnings for the fourth quarter then expected by the analysts, the true figure would likely fall in the $0.95 to $0.97 range. As with the other companies, Cameron's reduced expectations are largely tied to low U.S. natural gas prices. It's noteworthy that the new guidance is identical those for the quarter indicated by management upon the release of Cameron's third-quarter results.

Those prior quarter results included a year-over-year increase in revenues of nearly 32%. At the same time, its per-share earnings rose by 20%.

While I essentially warned you not to assume that Cameron and Varco are effectively twins separated at birth, I nevertheless believe that a comparison of a few of the companies' metrics is appropriate. For instance, both sport attractive PEG ratios, a measure of the relationship between the P/E ratio and growth expectations. Figures below 1.0 are bullish, and Cameron's curent ratio is 0.86, while National Oilwell Varco's is 0.73 -- clearly positive indicators for both companies.

Quantification
Cameron's trailing-12-month operating margin is 12.43%, about a third lower than Varco's 18.81%. And while National Oilwell Varco is essentially free of any net debt, Cameron's total debt of slightly more than $2.0 billion, vs. cash of $1.35 billion, is hardly indicative of a puny balance sheet.

As of Friday's close, Cameron shares were trading 19.5% below the analysts' mean one-year price target, while National Oilwell Varco's close was 32% under its mean target. At the same time, while Varco's per-share earnings are anticipated to expand by nearly 12% in 2013, Cameron's comparable difference between its current price and its target is 30%.

The Foolish bottom line
Finally, while fully 99.99% of CAPS players expect five-star National Oilwell Varco to outperform the market, a nearly as-impressive 99.97% of the same group are positive on four-star Cameron. Both companies enjoy unanimously positive expectation from the Wall Streeters. It thereby seems that, especially given its new pact with Schlumberger, Cameron is one four-star company that's ideally positioned to take off.


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