McDermott International, Inc.’s MDR share price movement has been weak, both in absolute and relative terms. Shares of this oilfield equipment provider have plunged 88.4% in a year, much wider than the industry’s 48.4% decline.
The company’s weaker-than-expected earnings in each of the trailing four quarters displeased investors, the average negative surprise being 283.60%.
McDermott Stoops to a Multi-Year Low in the Past Week
The sharp fall in McDermott’s stock is mainly due to the 20% drop in oil prices over a year's time. As crude prices trended down, lesser activity in the energy industry induced the lack of contract wins for McDermott. Moreover, the company issued a downward revision to its full-year guidance. The factors primarily responsible for this projection cut include disappointing second-quarter 2019 operating results, soft revenues and escalated unallocated operating expenses due to postponement in certain new award wins and project timing changes on the part of customers.
Following the worse-than-expected second-quarter results, McDermott trimmed the full-year guidance, dampening investors' confidence. The company’s slashed outlook now anticipates a net loss of $310 million against the $170 million net income it predicted earlier. McDermott’s negative free cash flow expectation for this year is likely to be about $640 million, higher than the prior forecast of $470 million.
In the past week, shares of the oilfield service provider tanked 70% to a 16-year low following rumours of a potential bankruptcy circulated in the media.
Stock in Recovery Mode With Almost 75% Jump
However, this Houston-based company recently experienced a massive upsurge of nearly 75% from multi-year lows in its stock price. The jump follows an announcement that McDermott is considering the sale of its industry-leading Lummus Technology business after arousing interest among prospective buyers. The company further plans to ideate strategic alternatives for this business, which McDermott values slightly beyond $2.5 billion. This move might enable the heavily indebted company to better its financial profit. As of Jun 30, 2019, McDermott’s long-term debt totalled $3.4 billion, representing a leverage ratio of 86.3%.
Zacks Estimates Suggest Improving Outlook
The Zacks Consensus Estimate for current-year loss is pegged at 33 cents per share, indicating a significant improvement from the year-ago loss of 99 cents.
Also, McDermott has an Earnings ESP of +20.00% at the moment, suggesting that analysts have grown bullish on its near-term earnings potential. When you combine this positive Earnings ESP with the stock's Zacks Rank #3 (Hold), it implies that another beat is possibly round the corner.
Zacks Rank & Key Picks
McDermott carries a Zacks Rank #3 (Hold). Better-ranked players in the energy space include BP Midstream Partners BPMP, Dril-Quip, Inc. DRQ and TC Pipelines, LP TCP, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BP Midstream’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters.
Dril-Quip earnings beat the Zacks Consensus Estimate in three of the previous four quarters.
TC Pipelines earnings beat the Zacks Consensus Estimate in three of the last four quarters.
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