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McDermott International (NYSE: MDR): Buy Opinon Re-Affirmed, with Minimal Exposure to Continental US Deep Water Oil and and Gas Activities

Energy Commentary from Karl Miller - Read Bio and More info

June 2, 2010 (Investorideas.com energy newswire) - Investorideas.com and its energy portals release Morning Market energy commentary from energy executive Karl Miller.

MDR’s Babcock and Wilcox subsidiary continues to perform in the power generation and a specialty manufacturer of nuclear components, prior to the planned spin-off of this subsidiary to shareholders.

This follows Mr. Miller’s May 12, 2010 feature article on MDR at Investorideas.com entitled “McDermott International (NYSE: MDR): The Best Kept Secret in the Energy Industry”.

Read the full article published May 12th at Investorideas.com:

http://www.naturalgasstocks.com/Karl_Miller/news/5121.asp

Highlights included in Mr. Miller’s May 12, 2010 article include:

The MDR Board of Directors, with shareholder approval, plan to spin-off the company into two (2) separate publicly traded companies in a spin-off of Babcock and Wilcox in a tax free transaction, which is targeted to be completed by the end of June 2010, a little over a month from now. The two companies will be owned 100% by the current MDR shareholders and operate under the following names and structure:

• McDermott International which, per the Company will take on the name of J. Ray McDermott S.A. will continue to focus and lead the industry in Offshore Oil & Gas Construction segment provides engineering, construction, installation and project management services to offshore oil and gas field developments worldwide. They operate in most major offshore producing regions throughout the world, including the U.S. Gulf of Mexico, Mexico, the Middle East, India, the Caspian Sea and Asia Pacific. J. Ray McDermott, S.A. will employ approximately 16,000 people worldwide.
• The Babcock & Wilcox Company ("B&W") per the Company is a leading technology innovator in power generation and a specialty manufacturer of nuclear components with a rich legacy spanning over 140 years. B&W designs, engineers, manufactures, and constructs power generation systems, primarily for large utility and industrial customers, as well as related aftermarket parts, services and environmental control systems. For its largest customer, the U.S. Government, B&W supplies nuclear components for defense programs and manages and operates nuclear facilities and environmental management sites. B&W, including its joint venture companies, employs over 15,000 people worldwide.

Now, while a tax free spin-off is always interesting, what is more interesting is the value inherent in the current consolidated MDR entity and the value creation and exposure to various sectors of the US and Global energy market the spin-off provides investors. Offshore Oil & Gas Construction segment provides engineering, construction, installation and project management services to offshore oil and gas field developments worldwide

Just on a stand-alone basis, MDR should be valued somewhere in the $30-$35/share price range on a combined cash flow multiple (EBITDA multiple) and a discounted cash flow model valuation, given the companies virtual monopoly in its respective business lines.

Now, if we take the sum of the parts analysis, and put an 8-10X EBITDA multiple on projected operating income per company plus organic growth, you are looking at a $9 billion enterprise value ,which using the approximate outstanding shares of 230,000,000 shares, yields a value of $40/share.

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Recent Karl Miller Articles:

"Did You Miss the Biggest Buying Opportunity in Energy, Thursday May 6, 2010" by energy executive Karl Miller

Read the full article published May 6th at Investorideas.com:
http://www.naturalgasstocks.com/Karl_Miller/news/5071.asp

Mr. Miller also published "You Must Be Invested in the U.S. Equity Markets: Overweight on Energy Producers and Utilities"
http://www.naturalgasstocks.com/Karl_Miller/news/5051.asp

Karl Miller model energy portfolio "Charitable Energy Stocks" on January 27, 2010. To see my model energy portfolio go to weblink:
http://www.naturalgasstocks.com/Karl_Miller/news/1281.asp

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This column, Energy Commentary from Karl Miller, is the opinion of Karl Miller. Content found in the articles is subject to the terms found in the InvestorIdeas.com disclaimer and does not represent a recommendation of investment advice by Mr. Miller. Investors should seek the advice of a qualified investment professional prior to making any investment decisions.