McDermott International(NYSE:MDR) - Fair value target $12.00/share based on the article below
McDermott International (MDR), Petroleo Brasileiro Petrobras SA (ADR) (PBR): This $7 Turnaround Play Could Pop 40% In 6 Months
If these changes result in improving cash flow in 2014 and 2015, look for investors to focus on what has become a deep value play. The company's market value of $1.8 billion is not far above tangible book value of $1.7 billion. And the company still carries roughly $400 million in net cash on its books. Morgan Stanley's analysts also see the company's order book falling from $4.8 billion in 2012 to just $3 billion this year and again in 2014. As a solid vote of confidence, CEO Johnson recently plunked down $500,000 of his own money to buy the beaten-down shares. Aug 8, 2013 JOHNSON STEPHEN MARCUM Officer 74,180 DirectPurchase at $6.74 per share. $499,973
I don't expect this stock to move back up into the mid-$20s, where it stood in early 2011. Not if management intends to shrink the company a bit in order to grow stronger. Still, a move up to $12, which would reflect a 2014 price-to-sales multiple of around 0.75, is quite reasonable. That's a fair price to pay for a company with broken but fixable problems that still faces a sizable market opportunity as offshore energy exploration trends continue to strengthen.
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According to the article it will take 12 to 18 months for bad projects to roll off the books, but the move should lead to a rebound in profit margins. So, the strategy is to continue to add to the position on any continued sell off. Buys below $7.00/share will result in buying at/or below TBV. Watch for new contract announcements that are more inline with their expertise (ie shallow water platforms) and expect their order book to contract but margins to expand.
I plan to keep my position small, about 1% of the portfolio but this name provides me exposure to the growing energy construction sector. I also want to add names that build and/or service LNG facilities (like CBI and FWLR) but for now I can find no deep discounted value buys.
EKS |
