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Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

Power Player in the Oil Patch by Christopher C. Williams

Summary: Shares of McDermott International (MDR) are up 400% since 2004, as are its profits. Of the company's three divisions (offshore oil-and-gas construction, government operations and power-generation systems), the oil construction unit (presently 39% of growth) is powering growth. International rigs have doubled over the past eight years. McDermott is expanding in the Middle East and Asia, including an undersea pipeline in the Caspian and expanding an exploration facility in Qatar. Likely project wins in Mexico and cost-cutting make earnings surprises likely (the company reports Monday). Analysts say its OxyFuel carbon-dioxide separation technology should benefit from the rush to reduce CO2 emissions at power plants; a pilot finishes this summer, and commercialization could be viable by 2012. Its government operations sells nuclear components and provides high-profile site-management; growth should be slow but steady, and may benefit from an increase in new power plants. Some analysts say earnings will grow 20% a year for the next 3-5 years; operating-profit margin is an industry-leading 9%; it's debt-free and has $1 billion in cash which it will use for acquisitions; last year it returned 215% on equity. At 16x 2008e earnings, Barron's says, "the stock is a relatively inexpensive play on the upturn in energy, oil and gas exploration, and the push for cleaner-burning coal."

Related Links: American Electric Power Looks to Reduce Coal CO2 EmissionsBuilding a Climate Change PortfolioJim Cramer's Take on MDR

McDermott Int 06 05 2007

Source: McDermott International: An Inexpensive Energy Play - Barron's