On Aug 7, Zacks Investment Research downgraded energy-focused
engineering and construction firm
) to a Zacks Rank #5 (Strong Sell) following its dismal second
quarter showing and several near-term challenges.
Why the Downgrade?
On Aug 5, McDermott reported weak Jun quarter results, owing to
lower activities in the Middle East and Asia Pacific regions.
Loss per share came in at 56 cents, against the Zacks Consensus
Estimate of a profit of 3 cents. In the year-ago quarter,
McDermott reported earnings of 22 cents per share. The company
generated revenues of $647.3 million in the quarter, down 27.2%
from the second quarter of 2012 and also failed to beat the Zacks
Consensus Estimate of $758.0 million.
McDermott has hinted towards revenue of $3 billion in 2013, lower
than the $3.6 billion it generated in 2012, mainly due to
uncertainty around the timing of some the company's bigger
awards. Additionally, McDermott sees the large Papa Terra project
in Brazil contribute to its earnings only in late 2013, as
against the previous assumption of an earlier timeframe.
The offshore oilfield service provider is also struggling with
cost overruns in its Malaysia and Saudi Arabia developments,
which may lead to lower returns going forward. The financial
picture has been further aggravated by deteriorating operating
margins in its shallow water projects, with the company trying
hard to expand into high margin deepwater projects.
As a result of these bearish factors, the tendency for a downward
estimate revision has been more obvious in recent times. In fact,
the Zacks Consensus Estimate for the third quarter has nosedived
9 cents (or 128%) to a loss of 2 cents per share over the last 7
days. The Zacks Consensus Estimate for the full year is a loss of
15 cents, down 58 cents (or 135%) in the same timeframe.
Stocks that Warrant a Look
While we expect McDermott to perform below its peers and industry
levels in the coming months and see little reason for investors
to own the stock, one can look at
Range Resources Corp.
Cabot Oil & Gas Corp.
Clayton Williams Energy Inc.
) as a good buying opportunity. These North American energy
explorers - sporting a Zacks Rank #1 (Strong Buy) - offer
tremendous value and are worth buying now.
CABOT OIL & GAS (COG): Free Stock Analysis
WILLIAMS(C)ENGY (CWEI): Free Stock Analysis
MCDERMOTT INTL (MDR): Free Stock Analysis
RANGE RESOURCES (RRC): Free Stock Analysis
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