McDermott (MDR) to Report Q3 Earnings: What's in the Offing?

McDermott International, Inc.MDR is expected to report third-quarter 2018 earnings on Oct 30, after the closing bell.

The engineering and fabrication giant delivered robust results in the last reported quarter on the back of solid operational execution. Coming to earnings surprise history, the company displays an excellent track record, having surpassed estimates in each of the trailing four quarters.

McDermott International, Inc. Price and EPS Surprise

McDermott International, Inc. Price and EPS Surprise | McDermott International, Inc. Quote

Importantly, the Zacks Consensus Estimate for McDermott's third-quarter earnings is pegged at 29 cents per share on revenues of $2.5 billion. Notably, the company reported EPS of 99 cents in the year-ago quarter. Importantly, its earnings estimates have remained unchanged over the past 2 months.

Let's delve deeper to find out how things are shaping up for this announcement.

Factors at Play

In May 2018, the company completed its strategic merger with Chicago Bridge and Iron, which added onshore services to the offshore-focused portfolio of the company. Increased scale and diversification have positioned the company to capitalize effectively on growth opportunities. The merger has given a big boost to the company's backlog and revenues.

Evidently, McDermott's backlog for the third quarter of 2018 is pegged at $10,033 million, reflecting a massive increase from the year-ago level of $2,428 million. The revenue estimate of the company is pegged at $2,504 million, which compares much favorably with $959 million reported in the corresponding quarter of last year. Backed by the strategic merger with Chicago Bridge and Iron, McDermott expects revenues in the second half of 2018 in the band of $4.8-$5.1 billion, implying a whopping year-over-year increase of around 191% at the midpoint of the guided range.

However, the company is likely to bear the brunt of increasing costs. In the last reported quarter, cost of operations increased from $650 million in the year-ago quarter to about $1.5 billion. During the second quarter, the company raised cost estimates for three of its important projects, which did not have any impact in the quarter but is likely to hurt overall earnings in the to-be-reported quarter. Notably, cost estimates of Cameron LNG project were increased $165 million while that of Calpine and IPL projects were raised $23 and $33 million, respectively.

Earnings Whispers

Our proven model does not conclusively show that McDermott will beat estimates in the to-be-reported quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat the consensus estimate. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter . That is not the case here as you will see below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are both pegged at 29 cents.

Zacks Rank: McDermott currently carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, an ESP of 0.00% makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

Though an earnings beat looks uncertain for McDermott, here are a few firms from the energy sector that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat in the quarter to be reported.

Enbridge Inc ENB carries a Zacks Rank #1 and has an Earnings ESP of +5.67%. The company is anticipated to report quarterly results on Nov 2.You can see the complete list of today's Zacks #1 Rank stocks here.

NOW Inc. DNOW has an Earnings ESP of +5.61% and a Zacks Rank #2. The company is anticipated to release quarterly numbers on Nov 1.

Penn Virginia Corporation PVAC has a Zacks Rank #2 and an Earnings ESP of +6.38%. The company will report third-quarter earnings on Nov 14.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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