Thanks to a stronger economy at home and tensions abroad, oil prices have remained firm around the $100/bbl. level lately. This trend has been reasonably bullish for companies in the drilling space, though many in the oil services market haven’t risen along with their peers in the broad energy industry.
Many names in this corner of the energy world have seen rough trading over the past few weeks, despite some solid trends in the space. One name that definitely sticks out in this regard as a firm facing some headwinds is McDermott International (MDR - Analyst Report) .
MDR in Focus
McDermott is a Texas-based oil & gas equipment & services company that operates across the globe. The firm has a definite focus on three key regions though, Asia Pacific, Atlantic, and the Middle East, while it zeroes in on offshore oil and gas projects as its specialty.
While this might sound like an in-demand service, the stock has been in serious trouble for quite some time now, as over the past two years MDR has lost more than 40% of its value. Obviously, this is pretty terrible, but it is especially so when one compares it to the SPDR S&P Oil & Gas Equipment & Services ETF (XES - ETF report) which represents the broad industry and has actually added more than 20% in the same time frame.
What is Behind the Slump?
MDR hasn’t been able to break out of its tailspin and one of the key reasons has been a lack of traction at earnings season. The company has only beat once in the past ten quarters, while its average surprise over the past four quarters has been a disastrous -780%. Things are now so bad that the company recently withdrew its previous guidance after a truly awful earnings report.
In fact, for the most recent earnings release, we had a consensus expectation of a profit of 16 cents a share, while the reported amount came in at a loss of 80 cents a share instead. This represents a 600% negative surprise, and it marks the third straight quarter of losses for MDR as well.
Thanks to these terrible reports, the guidance withdrawal, and concerns about cost-overruns and growth prospects, analysts have been drastically cutting their estimates for MDR’s future earnings. Current year figures have collapsed in the past 30 days, moving from a 39 cent per share profit estimate to one of just five cents a share today.
It doesn’t appear as though many analysts are optimistic about the situation either, as all estimates for the current quarter and current year have gone lower in the past 30 days, with not a single one going higher. Clearly, this is a very difficult time for MDR, and more pain could be ahead for this troubled company. That is why we have assigned MDR a Zacks Rank #5 (Strong Sell), and are looking for this stock to fall further in the months ahead.
Unfortunately, the oil field machine and equipment industry is very competitive and it hasn’t benefited from the current trends in oil prices. The space actually has a Zacks Industry Rank in the bottom 20%, meaning there are far better choices out there in terms of industries.
However, there is one company that looks promising in the space, Matrix Service (MTRX - Snapshot Report) , a firm that has a Zacks Rank #1 (Strong Buy). This company recently crushed earnings, and just moved up to a top rank in the past week, suggesting investors might want to focus their efforts here instead of the struggling McDermott International.
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