MRC Global Has No Recovery In Sight, Longbow Analyst Throws In Towel Amid Downgrade

Longbow's Chris Dankert downgraded the rating on MRC Global Inc MRC from Buy to Neutral. "While understanding the shares are off 30 percent since mid-CY15 and our ratings change is reactionary to sharply lower oil & gas prices and the relentless onslaught of capex reductions, we do not see a tangible catalyst for improved demand on the horizon," Dankert explained. Management highlighted that the upstream capex budget are expected to decline 40-50 percent in CY16, while the MLP midstream capex spend is also likely to drop about 20 percent. In addition, downstream capex spending is forecasted to decline 20 percent, driven by narrowing refining spread and continuing weakness in the Ag. and other end markets. For CY17, "both upstream and midstream capex are currently expected to remain flat, further pushing out the timeline for recovery," Dankert pointed out. MRC Global has guided to a decline in sales of 20-30 percent in CY16, with gross margin in the high 17-18 percent range, benefiting 80 bps from the OCTG sale mitigating price and volume headwinds. For 4Q15, the company reported its EPS ahead of the consensus and the estimate, driven by margin execution and a lower than expected tax rate. Sales beat the consensus but fell short of the estimate, while the adjusted EBITDA came in below consensus.