dilettantedude

Waiting for McDermott International to Correct

McDermott earned $700 m in free cash flow in 2007. If one assumes 0% growth in all their businesses for 2008 & 2009, then 14.5% for 2010, declining by 0.5% annually for the next 3 years, then growth at 9% for the following 5 years, an estimate of fair value based on free cash flow (NOT earnings!) is approximately $57/share. These are very pessimistic estimates for 2008 - '09. One can arrive at a fairly wide range of fair value estimates depending upon one's assumptions about growth in the energy markets, but estimates would seem to be heavily biased toward fair value or below at the current price.