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Bear of the Day

Given its erratic earnings trend over the last few quarters and a disappointing outlook for 2013, we are downgrading McDermott International (MDR) shares to Underperform from Neutral. Though the energy-focused engineering and construction firm beat revenue estimates in the most recent quarter, it had to deal with steeper operating costs.

McDermott has already hinted that its top line will suffer next year due to uncertainty regarding the timing of big awards. Near-term bookings also remain lumpy, 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. Our $9.75 price objective reflects 2013 P/E multiple of 11.1x.

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