Is This the Next National Oilwell Varco?

I recently described to Fools why I believe National Oilwell Varco (NYSE: NOV  ) , Cameron International (NYSE: CAM  ) , and Oceaneering International (NYSE: OII  ) all stand to benefit from the steady march of the global oil industry into progressively deeper waters.

Now, for those interested in researching smaller members of the oil-field services set, there's a company that incorporates elements of each of that trio. I'll specify some of those overlaps below. But it's worth noting that, because this fourth company has yet to celebrate its third birthday and has only been public for slightly more than a year, it may not yet have crossed your investment radar screen.

I'm speaking of Forum Energy Technologies (NYSE: FET  ) . The company, now with a $2.72 billion market capitalization, was formed in August 2010 through the roll-up of five more specialized members of the services sector. Its initial public offering occurred in the second quarter of 2012, and its shares have risen by 60% in the past year.

The management
Given its brief history, an assessment of managerial capability becomes more important than with older entities. I've had sufficient prior contact with Forum Energy's leadership to be convinced that the company appears to be soundly led. For instance, as an oil-field services analyst, I covered Ensco when Christopher Gaut, now Forum's chairman and CEO, was the offshore drilling contractor's CFO and later its co-chief operating officer.

From there I monitored him at Halliburton, where he subsequently served as CFO and later president of its drilling and evaluation division. Couple that with an engineering degree and a Wharton MBA, and you have a solid pedigree for overseeing an expanding oil-field services company.

The products, services, and overlaps
Today, Forum's 3,400 employees operate from several domestic and international locations, including Houston and other North American sites, the U.K., the Middle East, and Southeast Asia. Let's take a quick look at some of the company's key product and service offerings:

  • Like Oceaneering, Forum operates a fleet of ROVs and also provides related equipment and management. Indeed, as the company says on its website: "We offer the world's most comprehensive range of remotely operated vehicles used for inspection, survey and deep water construction."
  • Like National Oilwell Varco, Forum offers and array of drilling equipment and components. Included are tubular handling equipment, manifolds, and pipes. Also, like the bigger company, it provides a range of downhole equipment, including cementing and protection tools.
  • As with both Varco and Cameron, Forum provides blowout preventers to its customers. Its pump and valve offerings, along with its measurement and monitoring products, make it a still more direct competitor of Cameron, as do its subsea products and services.

Last month, Forum Energy and Quantum Energy Partners, a Houston-based private equity firm specializing in the energy sector, announced that together they would buy Global Tubing, a privately held, Texas-based provider of coiled tubing strings and related equipment. This addition will benefit Forum in its service to horizontal well drillers, who operate in an increasingly significant area of energy production.

Healthy comparisons
With that as a backdrop, let's examine how Forum stacks up against Cameron, Oceaneering, and Varco in a few key statistical areas:

Metric

Cameron

Forum

Oceaneering

Varco

Market Cap.

$16.1 billion

$2.8 billion

$8.5 billion

$31.1 billion

Forward P/E

13.2 times

13.9 times

20.1 times

11.1 times

PEG Ratio

0.82

0.89

1.15

0.92

Operating Margin

12.57%

15.13%

15.86%

16.30%

Total Debt/Equity

37.52

33.03

4.91

21.03

Forward Yield

N/A

N/A

1.10%

1.40%

Sources: Yahoo! Finance and TMF calculations

Obviously, attributable to its youth, Forum Energy Technologies is the smallest company in the group. Further, other than a few outliers, such as Oceaneering's substantially higher P/E -- along with its more muscular balance sheet -- and the dividend yields of Varco and Oceaneering, Forum essentially is comparable to the others. That, despite the demands and challenges of pulling five separate operations together in a brief three-year time frame.

Foolish takeaway
Given the key products and services on which Forum plies its trade, its quick start out of the blocks, and the quality of its management team, I strongly suggest that Foolish energy investors watch this young company carefully.

Forum Energy just might be following the successful path trod by National Oil Well Varco. To get a better handle on the bigger company, check out the special free report: "The Only Energy Stock You'll Ever Need." Don't miss out on this limited-time offer. Click here to access your report -- it's totally free.


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