McDermott Downgraded to Sell - Analyst Blog
May 14 2013 - 11:30AM
Zacks
Zacks Investment Research
downgraded engineering and construction firm McDermott
International (MDR) to a Zacks Rank #4 (Sell) on May
14.
Why the Downgrade?
On May 8, McDermott reported weak first-quarter 2013 profits, owing
to operating losses in some regions and increased expenses.
Earnings per share from continuing operations came in at 9 cents,
lagging the Zacks Consensus Estimate of 15 cents.
Moreover, the Texas-based engineering-to-project management service
provider’s per share profit was significantly lower than 25 cents
earned in the first quarter of 2012. The quarter’s results were
negatively influenced by lesser asset utilization and project
activity.
In fact, McDermott delivered negative earnings surprises in 2 of
the last 4 quarters with an average miss of 13.15%.
McDermott derives its revenues from companies in the oil and gas
exploration and production 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.
Additionally, McDermott has historically used bolt-on acquisitions
to plug holes in its product/service portfolio. The company may
find it difficult to complete accretive transactions in the future,
which could negatively impact its growth rate.
Other Stocks to Consider
Not all engineering firms in the energy sector are performing as
poorly as McDermott. The stocks of PowerSecure
International Inc. (POWR) and Matrix Service
Company (MTRX) with Zacks Rank #2 (Buy) and
Natural Gas Services Group Inc. (NGS) 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
POWERSECURE INT (POWR): Free Stock Analysis Report
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