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Is This the Right Time to Invest in McDermott (MDR) Stock?

Zacks

We issued an updated research report on McDermott International Inc. MDR on Nov 23, 2016.

Despite the weak commodity pricing environment, the offshore oil and gas-focused engineering and construction firm maintained an excellent track record of earnings surprise history. The company handily beat estimates in each of the last eight quarters. This is reflected in the company’s current Zacks Rank #1 (Strong Buy), implying that the stock will significantly outperform the broader U.S. equity market over the next one to three months.

McDermott is a leading global engineering and construction firm with a diversified product portfolio, specialty manufacturing and service capabilities, and proprietary technological expertise. Unlike other engineering and construction companies, the company is thoroughly involved in major offshore energy projects and is one of the few global contractors that can provide a complete array of services – from design to construction.

The company boasts significant presence in countries where state-owned entities scout for production growth and new resources. Moreover, the company possesses a solid balance sheet (cash and cash equivalents of $500 million and a very manageable debt-to-capitalization ratio of 31%), which is a real asset in this highly uncertain period for the economy.


Investors should also note that the company’s robust backlog, which now stands at $3.9 billion, not only reflects steady demand from its customers but also offers long-term earnings and cash flow visibility.

Based on these positives, we believe that McDermott is in a better position to weather the current uncertain environment in the energy engineering and construction space. This is evidenced by the company’s third-quarter 2016 profit. The company reported quarterly earnings of 9 cents per share, which compared favorably with the Zacks Consensus Estimate of a loss of 6 cents.

Other Stocks to Consider

Other well-ranked players from the energy sector that warrant a look include Ultra Petroleum Corp. UPLMQ, Diamondback Energy Inc. FANG and Helix Energy Solutions Group, Inc. HLX.

Ultra Petroleum is likely to witness year-over-year earnings growth of 425.8% in the current year. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Diamondback Energy beat the Zacks Consensus Estimate in each of the last four quarters with an average beat of 74.13%. It has a Zacks Rank #1.

Helix Energy posted an average positive earnings surprise of 56.42% in the last four quarters. The company has a Zacks Rank #2 (Buy).

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