McDermott Scoops Up Middle East Contract Worth $500-750M

McDermott International, Inc. (NYSE:MDR) recently clinched an offshore ‘EPCI’ contract worth $500-$750 million for a project in the Middle East. The contract requires McDermott to provide engineering, procurement, construction and installation services in the Arabian Gulf. Per the deal, the company will build six new offshore jackets and three associated topsides. The work also includes the construction of pipelines, bridges, cables and brownfield developments in the existing offshore facilities. Notably, the duration of the contract is around 3 years and its value is likely to be incorporated in McDermott’s first-quarter 2019 backlog.

Just a few days back, the company was awarded a subsea EPCI contract from BP plc (NYSE:BP) for the Greater Tortue Ahmeyim natural gas project. The value of the contract — which is to be reflected in the firm’s first-quarter 2019 backlog — is estimated in the band of $500-$750 million.

McDermott’s broad product portfolio, strong geographical footprint and healthy relationship with oil companies help it to notch up contract wins regularly even in volatile oil price environment. With ongoing contract wins, McDermott’s backlog and revenue pipeline are likely to witness further momentum.

As of Dec 31, 2018, it had a backlog of $10.9 billion, reflecting a major increase from $3.9 billion in the corresponding period of 2017. This is majorly driven by the company’s merger with Chicago Bridge & Iron, which boosted its backlog and added onshore services to the offshore focused portfolio of McDermott.The increased scale and diversification has positioned the company to capitalize effectively on growth opportunities, while leading to cost synergies.

McDermott has a significant presence in countries where state-owned entities continue to scout for production growth and new resources. The company's strong relationship with National Oil Companies in the Middle East enables it to generate long-term earnings and leads to an impressive revenue pipeline. As of Dec 31, 2018, the firm boasted a revenue opportunity pipeline of $93.1 billion, mainly driven by North, Central & South America, and Middle East & North Africa segments.

Zacks Rank & Key Picks

McDermott currently carries a Zacks Rank #3 (Hold).

Investors interested in the same industry can opt for some better-ranked stocks like Dril-Quip, Inc. (NYSE:DRQ) and USA Compression Partners, LP (NYSE:USAC) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks (Strong Buy) here.

Dril-Quip’s 2019 earnings are likely to increase 76.19% y/y.

USA Compression’s 2019 earnings are likely to increase 83.72% y/y.

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