On Nov 8, 2013, we upgraded our recommendation on
MRC Global Inc.
) to Neutral from Underperform, based on the company's recent
Why the Upgrade?
MRC Global has been growing inorganically over the past few
quarters. The company acquired Flow Control Products in July
2013, to expand operations in the Permian Basin, a major
oil-producing region in the U.S. Acquisitions of Chaparral
Supply, LLC and Production Specialty Services Inc. were completed
in Jun 2012 and Dec 2012, respectively. The acquired businesses
contributed roughly $43.0 million to revenues in the third
In the coming quarters, MRC Global plans to spend on further
acquisitions to gain a stronger foothold in the industry.
Strategic contract wins have helped increase the company's
market share in the past quarters. Till date, in 2013, MRC Global
received many contracts in all the markets, including upstream,
midstream and downstream. Improved North American upstream market
supported a 3.6% sequential improvement of revenues in the third
quarter of 2013. Based on the stabilizing market, MRC Global has
revised upwards the lower end of expected revenues for 2013 to
$5.16 billion from $5.10 billion.
However, the company's over-dependence on a handful of
customers raises our concern. Unfavorable spending pattern by the
top 25 customers in the second-quarter 2013 had a significant
impact on revenues. Also, its overseas operations expose the
company to various risks including negative foreign currency
exchange effects and geopolitical uncertainties.
Other Stocks to Consider
MRC Global currently carries a Zacks Rank #3 (Hold). Other
stocks in the industry worth considering include
Mueller Water Products, Inc.
). All these carry a Zacks Rank #2 (Buy).
FLOWSERVE CORP (FLS): Free Stock Analysis
GRAHAM CORP (GHM): Free Stock Analysis Report
MRC GLOBAL INC (MRC): Free Stock Analysis
MUELLER WATER (MWA): Free Stock Analysis
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