Valuation Scorecard: Stock Rating D-Negative (2/27/24)-Dril-Quip Inc. (DRQ).

As reflected at the current price of $21, what future Dril-Quip operating performance is the market anticipating? To achieve average annual stock market performance of 9.0% over the next 6 years, Dril-Quip shares will need to reach $36. Upper quartile performance will require a $42 Dril-Quip stock price by 2028.

Executive Summary

• Price Target Research identifies Dril-Quip as having: stability, high profitability, above average financial strength, and very low expected growth. A big positive influence on Dril-Quip’s valuation is its superior Profitability.
• Low valuation, below market shareholder returns. Current valuation levels are below average relative to the Dril-Quip Peer Group. Recent market returns have underperformed the Dril-Quip Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, Dril-Quip shares should reach a level of $27 by 2028 — an 3.9% per year total shareholder return. A 2028 stock price of $36 would reflect median performance and a price of $42 would be required to reach upper quartile performance.
• Dril-Quip’s achieved growth is slightly below average. Historical growth has been below average relative to the Dril-Quip Peer Group and forecasted growth is relatively very low. Asset Growth, Revenue Growth, and Equity Growth have lagged. These factors have negatively affected market perceptions of Dril-Quip. Dril-Quip’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity.
• Profitability has been Dril-Quip’s biggest valuation strength. Asset Turnover is group leading. This factor has strengthened market perceptions of Dril-Quip. The company has very low cash and will have to work to generate attractive investments and improve valuation.
• Dril-Quip’s risk profile is favorable. Overall variability has been very low with very low revenue variability, relatively low E.P.S. variability, and relatively low stock price volatility. Financial Strength is only average and earnings’ expectations are very low. The debt/capital ratio has risen very significantly.

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