MDR McDermott International Inc

Following a third quarter earnings miss and disappointing outlook for 2012, we are maintaining our Underperform recommendation for McDermott International (MDR) shares. The company recently reported lower-than-expected EPS for the September quarter, adversely affected by higher costs and weak activity in the Middle East.

McDermott has already warned that its margins will suffer next year due to lower marine activity and fabrication work. Near-term bookings remain lumpy at McDermott, as the current uncertain environment has hurt the economics of building new oil and gas infrastructure. Additionally, the transfer of the power generation and government operations has left McDermott with a less diversified business, thereby heightening its risk profile.

These factors are reflected in our continued Underperform recommendation on the company's shares. Our $11 price objective reflects 2012 P/E multiple of 10.2x.
 
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