McDermott Downgraded to Strong Sell - Analyst Blog
16 April 2013 - 1:50AM
Zacks
Zacks Investment Research
downgraded engineering and construction firm McDermott
International (MDR) to a Zacks Rank #5 (Strong Sell) on
Apr 13.
Why the Downgrade?
McDermott derives its revenues from companies in the oil and gas
exploration and production (E&P) industry, a highly volatile
and cyclical sector that is directly exposed to commodity prices. A
potential drop in oil and gas prices could curtail deepwater
drilling and dampen subsea equipment demand, adversely affecting
bookings at McDermott.
In particular, McDermott has hinted towards revenue of $3 billion
in 2013, lower than the 2012 figure of $3.6 billion, mainly due to
uncertainty around the timing of some the company’s bigger
awards.
Additionally, McDermott expects the large Papa Terra project in
Brazil to contribute to its earnings only in late 2013 or early
2014 against the previous assumption of an earlier timeframe.
We believe that the transfer of power generation and government
operations (post-split) has left McDermott with a less diversified
business, thereby heightening its risk profile.
A combination of all these factors has lowered earnings estimates
for McDermott in the last 60 days. The Zacks Consensus Estimates
have decreased by 20.0% to 16 cents per share for the first quarter
of 2013 and 16.85% to 74 cents per share for 2013.
Other Stocks to Consider
Not all engineering firms in the energy sector are performing as
poorly as McDermott. The stocks of Natural Gas Services
Group Inc. (NGS) and USA Compression Partners
LP (USAC) with Zacks Rank #2 (Buy) and Matrix
Service Company (MTRX) with Zacks Rank #1 (Strong Buy) are
worth considering.
MCDERMOTT INTL (MDR): Free Stock Analysis Report
MATRIX SERVICE (MTRX): Free Stock Analysis Report
NATURAL GAS SVC (NGS): Free Stock Analysis Report
USA COMPRESSION (USAC): Free Stock Analysis Report
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