McDermott International: Unlocking A Sea Of Potential

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DLP Investing
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Summary

  • McDermott's management team is successfully turning around the company in a tough environment.
  • McDermott is in a strong financial position to weather the energy downturn.
  • McDermott is currently under valued and offers a great opportunity for patient investors.

McDermott International (MDR) is a Houston based engineering, procurement, construction, and installation (EPCI) company, specializing in offshore and deep sea energy infrastructure that has been around in some capacity since the 1920's. With business offices, engineering facilities, or fabrication yards on every continent, McDermott has the ability to serve customers like ExxonMobil and Saudi Aramco world wide.

BUSINESS DESCRIPTION & STATUS

McDermott has a fleet of 12 vessels, with another under construction, categorized as Heavy Lift (4+ 1 under construction), Flex Lay (3), Rigid Reel-Lay (1), and Construction Support/Launch Barges (4). They operate, outright or through joint ventures, fabrication yards in Mexico, Indonesia, United Arab Emirates, China, Malaysia, and Saudi Arabia.

In 2013, a struggling McDermott overhauled its management team, naming David Dickson as the new president and CEO. Dickson appears to be doing a good job of turning the company around by closing out money losing legacy projects while carefully adding attractive opportunities to its backlog and strategically partnering with other major players. McDermott announced in January of this year that it has launched "io", an oil and gas consulting venture with GE Oil & Gas.

McDermott was awarded a contract categorized as "mega" from Saudi Aramco in August, the largest contract ever awarded to McDermott's Middle East operations. The contract covers complex work on 4 brownfield projects off the cost of Saudi Arabia. Work on this contract should last through mid-2018. The exact total contract award is unknown, but Cowen analysts estimate that McDermott's year to date new awards is around $2.6 billion, "which is more than were announced in 2013 and 2014 combined." From this slide from McDermott's 8/10/2015 2Q 2015 Supplemental Information, that assessment appears to be correct. The only "mega" project outstanding is valued at over $1.5 billion.

FINANCIALS

McDermott sports a relatively strong balance

This article was written by

DLP Investing profile picture
78 Followers
I am a civil engineer and individual investor. I spend a substantial amount of time reading and researching commodities, macro economic trends, and value investing strategies. With my background in the construction industry, I am able to analyze real world information compared to data provided by media outlets. I plan to eventually transition my career towards the financial sector.

Disclosure: I am/we are long MDR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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