Morningstar | Weir Remains the Leader in Upstream Pumping Equipment
Weir’s two largest operating segments drive its prospects: minerals, and oil and gas, which we expect to have diverging performance in the years to come. On the one hand, we believe that secular industry headwinds mean that minerals segment profitability will be mostly flat and will not recover to peak 2013 levels. Our in-depth forecasts for most of the key end markets served by the minerals segment, especially iron and copper, are quite bearish. We believe the 2000-13 mining boom, which generated exceptional profits for nearly all participants in the mining value chain, is not suffering a temporary setback but is instead amid a long-term reversal. We expect global demand for various industrial commodities to come under pressure as the Chinese economy, which was the primary driver of the mining boom, rebalances away from an investment-led growth model. However, Weir's business is more exposed to mining maintenance expenditures than greenfield capital expenditures, and therefore should be better placed than other mining equipment companies.Conversely, Weir is benefiting from a secular shift benefiting its oil and gas segment--the ascendance of U.S. shale. Weir is a leading manufacturer of equipment used in hydraulic fracturing of U.S. shale wells. The company's products are in general quite unique in offering a superior value proposition to developers of U.S. shale oil and gas. And, while the tremendous efficiency gains realized in some areas of U.S. shale services, such as drilling, will render reduced demand for those services in the coming years (compared with the 2014 prior peak), Weir benefits from the surging completions intensity in U.S. shale which, all else held equal, increases the demand for its products. Combined with our expectations of a sustained recovery in shale wells completed versus 2016 lows, as needed to fulfill the global call on U.S. shale oil production, this will drive sharply rising revenue and profits for Weir.The Weir Group is an engineering business. Co. is organized into three operating divisions: Minerals, which provides mill circuit technology and services as well as slurry handling equipment and associated aftermarket support for abrasive high wear applications; Oil & Gas, which provides pressure pumping and pressure control equipment and aftermarket spares and services, as well as equipment repairs, upgrades, certification and asset management, and field services; and Flow Control, which designs and manufactures valves and pumps, and also provides specialist support services to the global power generation, industrial, oil and gas and other aftermarket-orientated process industries.
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