MDR - Embedded Expectations Analysis - 2019 08 13
McDermott International, Inc. (MDR:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 13.8x Uniform P/E. Even at these levels, the market has bullish expectations for the firm, but management appears concerned about their margins, cash flow, and costs.Specifically, management may be overstating the value of their selection as the master licensor by S Oil, and they may lack confidence that this position will generate future cash flow. Furthermore, management may lack confidence in their ability to limit cost increases, and they may be concerned about the execution of their margin-enhancing opportunities. Moreover, they may be concerned about the inherent volatility of the E&C industry, and they may be exaggerating expectations for their turnaround efforts. Additionally, management may be concerned by their relationship with Pemex. Also, management may be concerned about continued headwinds driving negative cash flow. Finally, they may lack confidence in their cargo delivery methods.
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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