Investors are slowly regaining confidence in oil field services company McCoy Corp. and its international growth plans after some recent setbacks that caused its stock to plummet.
Shares of the Edmonton-based small-cap company, which makes tubular equipment used to connect pipes on land and offshore drilling rigs, are clawing their way back from a 20-per-cent drop over two days on the Toronto Stock Exchange in February.
That's when the company warned its fourth-quarter results would disappoint. It blamed lost production and revenue from the installation of a new internal information software system, which diverted management resources; the delayed shipment of a large international order; and startup costs of two sales and service centres in Scotland and Singapore.
The shares have since bounced back by about 14 per cent, driven partly by a near-record backlog and a bump in profit in the first quarter compared to the same time last year. McCoy released its first-quarter results in mid-May.
Although the shares are still below their seven-year high of $7.71 reached in January, analysts like the company's international growth plans, including its deeper foray into the oil-rich markets of Latin America and the Middle East.
McCoy is also selling off less profitable parts of the business, which includes heavy-duty mobile trailers used at drill sites and its coatings and hydraulics division. The plan is to invest more in its higher-margin, new-technology products such as special monitoring software that helps drillers increase accuracy and productivity.
"The margins in particular are improving for these guys … and they're doing a great job of expanding internationally," said Paradigm Capital analyst Jason Tucker, who has a "buy" on the stock and an $8.25 price target.
About half of the company's revenues are generated in North America – largely in the United States. About 40 per cent of its revenues come from offshore drilling services.
In addition to its headquarters in Alberta, McCoy has offices in Louisiana, Texas, Singapore and Luxembourg, as well as in Aberdeen, Scotland. It plans to open new locations in Dubai and Colombia in the coming months to serve growing oil and gas markets in the Middle East and Latin America.
McCoy chief executive Jim Rakievich sees an expanding global market for his company's services, particularly as drilling becomes more complicated and done in deeper, more remote geographies.
"Frankly, the easy oil is gone – just drilling straight, shallow vertical wells," said Mr. Rakievich in a telephone interview from his office in Aberdeen on Monday. "All of those macro trends – what they are doing and where they are doing it – work in our favour."
Risks for investors include the possibility of oil production slowing, as it did during the last global recession, as well as political unrest in some of the countries where the company does business. There's also competition from other oil field services companies around the world.
Analysts don't seem deterred, though. All five who cover McCoy have a "buy" or equivalent rating on the stock, according to S&P Capital IQ. The consensus price target over the next year is $7.85.
Raymond James analyst Theoni Pilarinos recently upgraded McCoy to "outperform" from "market perform" and raised her price target to $7.25, citing strong international sales and potential growth through acquisitions.
She said the company could also become a take-out candidate itself. These factors, along with the potential sale of its lower-margin businesses, "could all serve as near-term catalysts on the stock," she said in a research note.
Cormark Securities analyst Sarah Hughes recently boosted her target slightly to $7.50 after the company reported stronger-than-expected margins in the first quarter. "We continue to believe that McCoy is well positioned to see good growth in the coming years as well as margin expansion," Ms. Hughes said in a report.
Canaccord Genuity analyst John Bereznicki, who has an $8.25 target on the stock, recently put McCoy on the Canadian Focus List, which is the research firm's favourite investing ideas.