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McDermott International (MDR) Down 1.2% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for McDermott International, Inc. . Shares have lost about 1.2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is MDR due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Fourtth Quarter 2017 Results

McDermott International Inc.  reported earnings of 10 cents per share in fourth-quarter 2017, surpassing the Zacks Consensus Estimate of 3 cents. The better-than-expected results are mainly attributed to strong project execution, and increased marine and fabrication activities. Further, the bottom line also improved from the year-ago quarter’s earnings of 2 cents. Key projects which strengthened earnings in the quarter include Saudi Aramco LTA II Lump Sum, Saudi Aramco Marjan power system replacement, Inpex Ichthys and Saudi Aramco Safaniya Phase 5 projects.

McDermott generated revenues of about $718.1 million in the quarter, 11.9% higher than the prior-year quarter’s figure of $641.8 million. Increased activity in the Middle East drove revenues. However, the top line lagged the Zacks Consensus Estimate of $742 million.

Total Expenses

Total costs and expenses increased from $635.5 million in the year-ago quarter to about $664.2 million in the quarter under review. Full-year expenses also increased 6.7% compared with 2016 amid higher research and development costs along with increased cost of operations.

Backlog

As of Dec 31, McDermott had a backlog of $3.9 billion compared with $4.3 billion a year ago. While 87% of the total backlog is related to offshore operations, the remaining 13% pertains to subsea operations.

Balance Sheet

Capital expenditure for McDermott was about $22 million during the quarter compared with $31 million in the year-ago quarter.  As of Dec 31, 2017, the company had cash and cash equivalents of $390.3 million and long-term debt of approximately $512.7 million. Its debt-to-capitalization ratio was about 22.3%.

2018 Guidance

The company reiterated its preliminary guidance issued on Jan 24. McDermott expects full-year revenues to lie within $3.1-$3.3 billion range. The company expects the EBITDA to be within the range of $340-$365 million. Net income is now anticipated to be approximately between $120 and $145 million. McDermott expects free cash flow to range within $195-$235 million. The EPS is estimated to lie between 42 cents and 52 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter. In the past month, the consensus estimate has shifted by 54.6% due to these changes.

McDermott International, Inc. Price and Consensus

VGM Scores

At this time, MDR has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for growth and to a lesser degree momentum.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision indicates a downward shift. Notably, MDR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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