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Zacks Investment Research downgraded MRC Global Inc. (MRC - Analyst Report) to a Zacks Rank #5 (Strong sell) on June 4, 2013.

Why the Downgrade?

Recent disclosures made by MRC Global on May 29 resulted in downward revision in earnings estimates in the last 7 days. The Zacks Consensus Estimate for 2013 has gone down by 4.0% to $2.17 while for 2014, the estimate decreased 4.8% to $2.58.

Line pipe sales in the two months ended May 31, 2013 were below the company’s original expectations due to reduced investment activities from its United States customers.

Management of MRC Global now expects line pipe sales to be $100 million below its original forecast and roughly 10% down on a year-over-year basis for the second quarter 2013 while going down roughly $300 million year over year for 2013.  

Apart from the line pipe sales, OCTG sales of MRC Global are expected to be down $70 million for the second quarter 2013 and $200 million for 2013 compared with their respective year-ago periods.

Considering all these factors, management revised its revenue guidance for 2013 to $5.4-$5.8 billion from $5.75-$5.95 billion expected earlier. For the second quarter, revenues are likely to be within the $1.25-$1.35 billion range.

A glimpse into the first quarter 2013 results show that revenue generation in the quarter was also weak and decreased 5.6% year over year due to the prevailing weakness in the U.S. upstream and midstream sectors as well as planned reduction in oil country tubular goods (OCTG) business.

 A weak revenue outlook as well as lower earnings guidance raises skepticism over the financial results in the quarters ahead. Currently, for MRC Global, we have an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of -6.4% for the second quarter, -4.2% for 2013 and -3.5% for 2014.

Other Stocks to Consider

MRC Global is a $2.7 billion company engaged in the distribution of pipes, valves, and fittings (PVF), and related products and services to the energy industry worldwide.

Other stocks to watch out for in the industry are Mueller Water Products, Inc. (MWA - Snapshot Report), with a Zacks Rank #1 (Strong Buy) while Valmont Industries, Inc. (VMI - Analyst Report) and W.W. Grainger, Inc. (GWW - Analyst Report), each has a Zacks Rank #2 (Buy).
 

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