MRC Global Downgraded To Sell On Weak Business Conditions

On Jul 5, 2016, Zacks Investment Research downgraded MRC Global Inc. (NYSE:MRC) to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies holding a Zacks Rank #4 have high chances of underperforming the broader market in the quarters ahead.

Why the Downgrade?

Reduced consumer spending, weak demand from transmission customers, deferral in repair, maintenance and operational expenditure in the U.K., Norway, Singapore and Australia and a strong U.S. dollar have been negatively affecting MRC Global’s revenues and margins in recent times.

The company sells various steel products under its tubular product category. Hence, its revenues and margins remain sensitive to fluctuations in steel price and supply. Given that iron ore is an import raw material for steel manufacture, a fall in the price of the commodity is resulting in a decrease in steel prices. This, in turn, is likely to lower the company’s revenues and gross profit as well as cash flow in the near future.

Moreover, MRC Global operates in a highly competitive industry and hence, runs the risk of market share loss. Higher expenditure owing to changes in the global oil & natural gas industry has also been denting the company’s revenues and margins. Also, increasing usage of alternative fuel sources might lower oil and gas spending, which in turn is likely to hurt the company’s profitability.

Over the last 60 days the Zacks Consensus Estimate for the stock has decreased by 7.5% and 33.3% for 2016 and 2017, respectively. As of Jul 6, 2016, MRC Global’s share price stood at $13.69 per share.

Stocks to Consider

Some better-ranked stocks in the industry include Synalloy Corporation (NASDAQ:SYNL) , First Majestic Silver Corp. (NYSE:AG) and Albemarle Corporation (NYSE:ALB) . All the three companies sport a Zacks Rank #1 (Strong Buy).

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