McDermott Upgraded To Outperform, Analyst Cites Improving Prospects 'Amid Energy Market Slowdown'

In a report published Tuesday, Imperial Capital analysts upgraded the rating on McDermott International, Inc MDR from In-Line to Outperform, while raising the price target from $4 to $6. The analysts mentioned that the company's prospects are improving despite the energy market slowdown. McDermott reported revenue of $2,301mn, EBITDA of $107mn, and net income of -$76mn during the last twelve months ended December 31, 2014. As of that date, the company had $852mn in total cash and total debt of $922mn, equating to net debt of $70mn. The analysts expect McDermott to benefit from growing demand for offshore oil & gas construction services, given the company's strong asset base and attractive geographic footprint. Contract awards are beginning to gain momentum and liquidity "appears sufficient to supports MDR's turnaround strategy." In the report Imperial Capital noted, "Although the recent collapse in oil and gas prices might suggest a bearish outlook for offshore construction activity, recent evidence suggests MDR's award prospects are starting to pick up, and could gain further traction in our view, particularly if commodity prices continue to stabilize." "MDR's bid funnel remains active, and a recent spate of new contracts suggests FY15 is off to a good start, and that management's renewed commercial mindset is beginning to produce results," the analysts wrote. Although volatility in commodity prices may impact sponsor decision-making on the margin, the analysts expect project flow to "remain fairly resilient," likely with a "near-term bias toward conventional offshore projects." Recent vessel investments and strategic alliances may "help drive greater success in the higher-margin deep-water market over time," the report added.