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McDermott International's Stellar Expectations


  • The management team at McDermott announced significant cash flow following the completion of its absorption of CBI earlier this year.
  • Due to additional product lines and a recovery in the energy space, the infrastructure business sees significant opportunities in the years to come.
  • This year is expected to be a wash on a cash flow basis, but the firm has enough cash to survive and can wait for the awards its hoping for.

Owning shares of McDermott International (MDR) over the past few years has been a heck of a rollercoaster, especially when you consider that management, on May 10th of this year, finished its merger with Chicago Bridge & Iron (aka CBI). As the energy space contracted materially starting in 2014, and as key projects from CBI’s acquisition of Shaw ran over, the infrastructure firm and its investors suffered, but the combination with McDermott is finally starting to show some positive results. In McDermott’s latest earnings release, management discussed future steps for the entity and they highlighted significant opportunities that should, if all goes well, generate attractive value for investors for years to come.

Great results

Pretty much no matter how you stack it, McDermott fared well during the quarter. According to management, for instance, operating cash flow came in at $398 million, while free cash flow was a hefty $374 million. These compare to the second quarter results of the business’s 2017 fiscal year of just $42 million and $24 million, respectively. Thanks to robust cash flow in the quarter, operating cash flow in the second half of 2018 totaled $435 million, up from last year’s $91 million. Free cash flow during this period of time was $392 million, up from a paltry $10 million a year earlier.

Another great showing for McDermott related to the company’s final estimates related to CBI’s problem contracts. One major point of uncertainty from shareholders in both McDermott and CBI had been that CBI’s management team was either under-stating project costs intentionally or that it had a poor ability to foresee what costs would end up being. Either way, with McDermott in the driver’s seat, there appears to be optimism that past mistakes won’t carry on into the future.

*Taken from McDermott International

This optimism

This article was written by

Daniel Jones profile picture
Robust cash flow analyses of oil and gas companies

Daniel is an avid and active professional investor. He runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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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