Shares of offshore oil and gas-focused engineering and construction firm, McDermott International (MDR) fell more than 6% on the NYSE to touch a 52-week low of $2.10, on Jan 21. Most importantly, the company’s shares plunged over 70% during the last six months.
What Led to the Share Price Decline?
Swiss banking giant UBS AG (UBS) recently downgraded its rating on McDermott to Neutral from Buy. The financial services firm has lowered its price target to $2.40 from $6 per share. One of the primary reasons behind this is the weak oil price scenario.
Crude prices have tumbled more than 50% since last June. This is primarily owing to abundant supply of the commodity and lackluster global demand. Amid weak crude pricing, everybody was expecting a production cut from the international cartel of oil producers – Organization of the Petroleum Exporting Countries (OPEC) – as the measure could arrest the price slide. But OPEC’s decision of not curbing output at a meeting in Vienna on Thanksgiving Day added to the oversupply concern and pushed crude prices further down.
The financial services firm also apprehends that McDermott might fail to meet its debt covenants due to unfavorable business.
Incorporated in 1959, Houston, TX-based McDermott is solely focused on the offshore oil and gas business. The company primarily serves the worldwide offshore oil and gas field developments, including front-end design and detailed engineering, fabrication and installation of offshore drilling and production facilities, as well as installation of marine pipelines and subsea production systems.
As all of the company’s business is primarily dependent on crude prices, most of the analysts expect McDermott’s business to be hampered.
All these events are reflected in the company’s new 52-week low price.
Zacks Rank & Stocks to Consider
Currently, McDermott carries a Zacks Rank #3 (Hold).
Better-ranked players in the energy sector include Cheniere Energy Partners LP (CQP), Spectra Energy Partners LP (SEP) and Golar LNG Partners LP (GMLP). All these stocks sport a Zacks Rank #1 (Strong Buy).
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