Lufkin Industries: Pump Alternatives and Cheaper Competition Threaten Position

A New York presenter recommends a short on Lufkin Industries (NASDAQ: LUFK, $74.12). The company is a high-cost manufacturer with limited capacity to compete on price. There are a number of alternatives to its main product beam pumps, which have traditionally been the product of choice in artificial lift. Competing pumps work at a wider range of depths and are capable of handling higher volumes. There is also a growing threat from Chinese manufacturers that are able to sell the product significantly cheaper. The quality of the imported product has improved substantially as well. The presenter believes the downside can reach 20% from the current level, based on 6x his estimate for LUFK's peak EBITDA.