• In a relatively short time span, T-3 has established itself as a respected competitor in the design, manufacture, repair, and servicing of blow-out preventers (BOP) used in oil and gas drilling.
• T-3 has successfully moved from aftermarket service provider to original equipment manufacturer in the pressure control business, and it is now trying to replicate that approach in the wellhead equipment and pipeline valve businesses.
• T-3’s backlog stood at approximately $69 million on March 31, 2007, and has increased for nine successive quarters as a result of strong demand for blow-out preventers and well-timed investments in new production capacity.
• T-3’s low valuation compared to its larger rivals (National Oilwell Varco, Cameron International, and Hydril) is the basis for our Outperform rating.

Bear, Stearns earnings estimates for TTES are $2.20 EPS for 2007, and $2.65 EPS for 2008. Interestingly, TTES’s main comps, as we mentioned here in the past, are CAM and HYDL, with HYDL still being the best comp in our opinion. As discussed, HYDL was recently bought out by Tenaris, with a valuation of 19X 2007 estimates, suggesting upside for TTES of nearly $40. While the analyst at Bear, Stearns is valuing TTES at a discount to its much larger peers, we think the valuation discount is unwarranted considering TTES’s much larger growth potential at this point in time. Notably, T-3 is still only a small player in the BOP market with a mere 10% share, as compared to a combined 85% share of the market by much larger competitors Varco, Cameron International, and Hydril. As such, continued small market share gains alone should be enough to maintain the company’s recent high earnings growth rate.

Disclaimer:

We own shares in TTES and first initiated coverage of the company in October 2005. This site may include market analysis and we may own shares in the stocks mentioned in our reports. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

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