Zacks Investment Research downgraded shares of McDermott International Inc. (MDR) from NEUTRAL to UNDERPERFORM on May 31, 2012, with a target price of $9.25.
Given its erratic earnings trend over the last few quarters and a disappointing outlook for 2012, we are downgrading McDermott International shares to Underperform from Neutral. Though the energy-focused engineering and construction firm managed to beat estimates in the most recent quarter, it had to deal with depressed marine activity in the Asia Pacific unit and a dip in fabrication man-hours. McDermott has already warned that its margins will suffer this year due to these two factors. Near-term bookings also remain lumpy, as the current uncertain environment has hurt the economics of building new oil and gas infrastructure. Additionally, the transfer of the power generation and government operations has left McDermott with a less diversified business, thereby heightening its risk profile.
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