McDermott Strikes Twin Deals - Analyst Blog

A subsidiary of the energy-focused engineering and construction firm McDermott International Inc. (MDR) has inked two contracts for a client in the Arabian Gulf. Estimated at $900 million, the contracts will form part of McDermott's first quarter 2013 backlog.

Per the first contract, McDermott is entitled to engineering, procurement, construction and installation of a new tie-in platform, a 3,200-ton topside and six-pile jacket, two auxiliary platforms, jackets and bridges. The company will also be responsible for five observation platforms, 72 kilometers of pipelines and 45 kilometers of subsea cables. Water depth of the same will be between 10–30 meters.

McDermott will also carry out brownfield work which includes upgrades to five platforms with new main, mezzanine, cellar and helicopter decks and new boat landings. This contract is expected to be over by the third quarter of 2015.

With respect to the second contract, McDermott will be responsible for the fabrication, transportation and installation of five drill support structures. Total weight of the facility is 7,993 tons in water depth of between 30 meters to 65 meters. This contract is expected to be completed in first quarter of 2014 with hookup and commissioning work.

McDermott’s Al-Khobar and Dubai engineering offices will undertake the engineering work while construction will be carried out at its fabrication facility in Jebel Ali, United Arab Emirates.

These contract wins are suggestive of McDermott’s expansion mode. It looks forward to more such opportunities in the coming years. We believe such accomplishments will garner profits for McDermott in the upcoming quarters.

However, the transfer of the Power Generation Systems and Government Operations segments into a separate, independent and publicly traded entity – The Babcock & Wilcox Company (BWC), has left McDermott with a less diversified business, thereby making its profile riskier.

McDermott currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Meanwhile, there are other engineering firms that are performing better and are worth considering at the current level. These include Matrix Service Company (MTRX) and Natural Gas Services Group Inc. (NGS). Both these stocks sport a Zacks Rank #2 (Buy).

BABCOCK&WILCOX (BWC): Free Stock Analysis Report

MCDERMOTT INTL (MDR): Free Stock Analysis Report

MATRIX SERVICE (MTRX): Free Stock Analysis Report

NATURAL GAS SVC (NGS): Free Stock Analysis Report

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