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Why Is McDermott (MDR) Up 4.4% Since Its Last Earnings Report?

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It has been about a month since the last earnings report for McDermott International, Inc. (MDR - Free Report) . Shares have added about 4.4% in that time frame.

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

First-Quarter 2018 Results

McDermott International reported earnings of 17 cents per share in first-quarter 2018, surpassing the Zacks Consensus Estimate of 16 cents. Further, the bottom line also improved from the year-ago quarter’s earnings of 8 cents. The outperformance can primarily be attributed to solid operational execution.

Key projects that strengthened earnings in the quarter include Inpex Ichthys, Pemex Abkatun-A2, Saudi Aramco LTA II Lump Sum and Saudi Aramco Safaniya Phase 5.

McDermott generated revenues of about $607.8 million in the quarter, 17% higher than the prior-year quarter’s figure of $519.4 million and also ahead of the Zacks Consensus Estimate of $591 million. Increased activity in the Middle East drove revenues.

Cost of operations increased from $428.6 million in the year-ago quarter to about $475.7 million in the quarter under review. While expenses in research and development decreased 4.8% year over year to $458 thousand in the first quarter of 2018, selling, general and administrative expenses rose 33.9% from the prior-year quarter to $48.9 million.

Backlog

As of Mar 31, McDermott had a backlog of $3.4 billion compared with $3.9 billion a year ago. In the first quarter, the company took $321.2 million worth of orders, following which its book-to-bill ratio is 0.5x.

Balance Sheet

Capital expenditure for McDermott was about $18.4 million during the quarter, compared with almost $63 million in the year-ago quarter.  As of Mar 31, 2017, the company had cash and cash equivalents of $412.7 million and long-term debt of approximately $513 million. Its debt-to-capitalization ratio was about 21.8%.

2018 Guidance

The company reiterated its preliminary guidance issued on Jan 24. McDermott expects full-year revenues to lie within the $3.1-$3.3 billion range. The company expects EBITDA to be within the range of $340-$365 million. Capital expenditure is anticipated to be between $100 million and $115 million. Net income is now anticipated to be approximately within $120-$145 million. Also, McDermott expects free cash flow to range within $195-$235 million. 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 have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 45.6% due to these changes.

McDermott International, Inc. Price and Consensus

VGM Scores

At this time, MDR has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, MDR has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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