McDermott Upgraded to Neutral - Analyst Blog
April 13 2012 - 11:46AM
Zacks
We have upgraded energy-focused engineering and construction
firm McDermott International (MDR) shares to
Neutral from Underperform, while being incrementally more positive
on the company.
Incorporated in 1959, McDermott primarily serves the worldwide
offshore oil and gas field development activities, including
front-end design and detailed engineering, fabrication and
installation of offshore drilling and production facilities, as
well as installation of marine pipelines and subsea production
systems.
Additionally, the company provides project management and
procurement services. It operates in most major offshore oil and
gas producing regions, including the U.S., Mexico, Canada, the
Middle East, India, the Caspian Sea and Asia Pacific.
In August 2010, McDermott completed the spin-off of its ‘Power
Generation Systems’ and ‘Government Operations’ segments into a
separate, independent and publicly traded entity The
Babcock & Wilcox Company (BWC).
Given its geographic footprint in high-growth regions,
technology leadership and efficient execution skills, the company
is poised to benefit from the strong industry fundamentals for
offshore construction activities through 2012 and beyond. We
believe order flow and backlog for McDermott’s products and
services will continue to be healthy and trend higher in the
near-to-medium term.
Additional positives in the McDermott story include continued
success on big awards, growing international operations and a solid
balance sheet.
However, due to McDermott’s exclusive focus on the offshore oil
and gas business and the tentative commodity price outlook over the
next few quarters, we believe investor sentiment towards the
company will remain lukewarm. We further believe that the transfer
of the power generation and government operations (post-split) has
left McDermott with a less diversified business, thereby
heightening its risk profile. Steep operating costs and a slower
award environment in 2011 also continues to weigh on McDermott’s
results.
As such, we expect the company’s growth potential to be
restrained with little room for meaningful upside from current
levels. Our new long-term Neutral recommendation is supported by a
Zacks #3 Rank (short-term Hold rating).
BABCOCK&WILCOX (BWC): Free Stock Analysis Report
MCDERMOTT INTL (MDR): Free Stock Analysis Report
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