McDermott International Inc (MDR) is small cap company in the energy sector that competes in the oil well services and equipment industry. MDR provided expertise in engineering, construction, and installation for the purposes of designing and executing offshore oil and gasoline projects around the globe. Its operations are spread across twenty different countries and run by over 13,000 employees. This article provides an overview of MDR's recent performance and concludes with five reasons as to why MDR has the potential to generate a substantial upside for investors.
MDR is trading at roughly $10.50 per share. Given there is nearly 235.84 million shares outstanding, the market capitalization is approximately $2.49 billion. The figure shown below illustrates MDR's five year performance in terms of market value per share.
Figure 1: MDR Five-Year Price Graph from TD Ameritrade
Five reasons why MDR is a solid buy at current market valuation:
- MDR presents favorable valuation metrics. Currently, MDR's P/E and P/B ratios are 14.23x and 1.34x, respectively.
- Asset utilization and return on equity are highly favorable. MDR's return on equity is roughly 9.87%, while it reveals a positive return on assets of 5.84%.
- MDR has consistently displayed strong levels of profitability, averaging approximately $256,433 per employee.
- Recent catalysts concerning profit margins are in favor of a tremendous upside in value. It was reported on Monday that MDR's third quarter profits more than quadrupled from a significant increase in fabrication and marine activity in its operations throughout the Middle East and Atlantic segments.
- MDR is increasingly gaining the attraction of additional analysts. Seven of the analysts that cover MDR have rated it a strong buy with a mean price target of $15 per share. One of these analysts who works at Credit Suisse just upgraded MDR to outperform on December 7th.
MDR is clearly undervalued and given its ability to turnover a profit, MDR presents an intriguing opportunity for investors seeking a value play with only a moderate level of risk. With a beta value of only 1.53, its holding period returns only expose investors to a slightly higher level of risk than market returns. In conclusion, MDR is an investment opportunity with a high potential upside.
Sources: Google Finance, Yahoo Finance, TD Ameritrade, and FinViz.
Disclosure: I am long MDR.