MDR - Embedded Expectations Analysis - 2018 10 10
McDermott International, Inc. (MDR:USA) currently trades above recent averages relative to UAFRS-based (Uniform) Earnings, with a 23.6x Uniform P/E. However, even at these levels, the market has bearish expectations for the firm, and management has concerns about increasing costs, guidance targets, and pricing terms for new contractsSpecifically, management may lack confidence in their ability to limit cost increases, and in their decision to stop pursuing one particular project. They may also be concerned about the progress of their mechanical completion and offshore commissioning on BP Angelin, and may be exaggerating the opportunities for them to get involved in the pricing aspects for LNG projects. Moreover, they may be concerned about the payment terms of their new pipeline project with PEMEX, and their ability to train new CB&I employees to utilize their data to make decisions. Additionally, they may lack confidence in their statement that they did not need to make a material change in cost estimates due to the acquisition of CB&I, and that the merger only impacts their opening balance sheet. Finally, they may lack confidence in their target estimates for interest expense and net working capital, and their ability to meet their target leverage ratio by 2020
McDermott International is a provider of engineering, procurement, construction and installation and technology solutions to the energy industry. The company designs and builds end-to-end infrastructure and technology solutions to transport and transform oil and gas into a variety of products. The company's proprietary technologies and solutions are utilized for offshore, subsea, power, liquefied natural gas and downstream energy projects around the world. The company's business is organized into five operating groups, which represent its reportable segments, consisting of: North, Central and South America; Europe, Africa, Russia and Caspian; the Middle East and North Africa; Asia Pacific; and Technology.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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