MRC Global Battles Headwinds With Robust Growth Drivers

On Mar 5, we issued an updated research report on MRC Global Inc. (NYSE:MRC) .

Existing Scenario

Increased customer spending activities across all sectors and segments drove MRC Global’s revenues by 25.6% year over year in fourth-quarter 2017. The company projects its upstream, midstream and downstream revenues to be up 10-20%, 5-15% and 5-15%, respectively in 2018.

MRC Global believes increase in worldwide capital spending budgets will bolster revenues of its upstream sector. Also, growth in upstream business will likely strengthen sales for its midstream products, such as gathering systems. On the other hand, new projects, steady base of continuing maintenance and market-share gains will also bolster revenues of the downstream sector. Consolidating all these, the company anticipates to report revenues in the range of $3.85-$4.25 billion in 2018, an upsurge of 11% at the midpoint, over 2017.

MRC Global secured a benefit of $50 million in 2017 on the back of the Tax Cuts and Jobs Act enacted on Dec 22, 2017. Notably, the company noted that reduced tax rates (on account of the new law) will help in generating profitability and cash flow benefits. Moreover, MRC Global expects that execution of several cost-saving moves, such as lowering head counts, will help boost its near-term profitability.

This Zacks Rank #3 (Hold) company also believes strategic organic deals will strengthen its financial fundamentals in the quarters ahead. For instance, major contracts secured from Statoil (OL:STL) (July 2017) are anticipated to drive the company's yearly sales by roughly $7 million over the next four years. In addition, the five-year long maintenance, repair and operations agreement signed with Exxon (NYSE:XOM) Mobile (March 2017) is expected to propel the company's yearly sales by nearly $50 million for five consecutive years, starting 2018. Notably, the PVF deal secured from PBF Energy (April 2017), and the contract wins from Deutsche Erdoel AG and renewal of the existing deal with NiSource (NYSE:NI) (July 2017) will stoke the company's top-line growth in the near future.

However, over the last six months, MRC Global’s shares have rallied 7.2%, underperforming 12.1% growth recorded by the industry.

MRC Global’s downstream business has been adversely affected by rise in oil prices. The West Texas Intermediate (WTI) crude witnessed a 20% gain in fourth-quarter 2017. The extension of the production cut deal by Organization of the Petroleum Exporting Countries players supported the rally in crude prices. Further upswing in prices might thwart MRC Global’s downstream results.

Being a multinational company, MRC Global is exposed to several headwinds. For instance, a stronger U.S. dollar might hurt the company’s profitability in the foreign end-markets. Moreover, MRC Global faces stiff competition in the industry. Extensive business rivalry increases the bargaining power of customers and thus, exposes the company to risks of market-share loss.

In addition, MRC Global’s profitability is highly sensitive to market price as well as availability of intermediate inputs. Any sudden supply-demand imbalance or fluctuations in price of these materials might escalate the company’s operational expenses, in turn, denting its bottom-line performance in the quarters ahead. For instance, MRC Global sells various steel products under its tubular product category. Sudden inflation in the price of iron ore (major steel making component) will drag down the company’s revenues and margins in the upcoming quarters.

Stocks to Consider

Some better-ranked stocks in the Zacks Industrial Products sector are listed below:

Applied Industrial Technologies, Inc. (NYSE:AIT) sports a Zacks Rank #1 (Strong Buy). The company has pulled off a positive average earnings surprise of 10.97% over the last four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

TASER International, Inc. (NASDAQ:AAXN) carries a Zacks Rank #2 (Buy). The company has recorded an outstanding average positive earnings surprise of 188.33% in the preceding four quarters.

Acco Brands Corporation (NYSE:ACCO) carries a Zacks Rank #2. The company generated a positive average earnings surprise of 82.49% during the same time frame.

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