McDermott International: Still a Buy?

McDermott International (MDR) is a resilient performer in a weak oil pricing environment as the stock trades at 52-week highs. It has appreciated over 80% in 2015, driven by strong execution and the planned capturing of new contracts with several new players in the oil and gas basins spread across the Middle East including, Saudi Arabia is forecasted to significantly grow McDermott’s production and add to the company’s top line growth.

Positive views

Due to its positive moves, Credit Suisse analyst Jamie Cook reiterated an Outperform rating on McDermott International.

Its top and bottom line growth is being supported by significant growth in production for the quarter and planned new agreements signed with other key players in the vertical.

Another analyst, Cowen & Co’s Scott Kirkwood, has reiterated an Outperform rating on McDermott International, Inc. with a price target of $7 and primarily driven by the continued cost control efforts being executed by the company in addition to the company’s vertically integrated service offerings that should help drive new orders.

Thus, a number of analysts are extremely positive regarding the growth outlook of McDermott International, Inc., encouraged by significant growth initiatives being taken by the company including, strategic collaboration with other major players active in drilling and exploration of oil and gas to jointly use sophisticated drilling methodologies for expanding production at lowered costs.

The negatives

However, investors should not forget that even though the views regarding McDermott are positive, the company might have difficulty in successfully converting the order backlog due to weakness in the end market.

Also, McDermott has a disappointing valuation and poor growth prospects with a PEG ratio of -2.05, depicting a decline in its performance going forward. The profit margin is also negative, while the company also carries a sizable debt burden. McDermott has a total debt position of $854.16 million, while the cash position is smaller at $576 million. Hence, despite positive analyst views, investors should be careful while investing in McDermott.

Published on Oct 23, 2015
By Harsh Singh Chauhan

Copyrighted 2020. Content published with author's permission.

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