On to McDermott which for most of August was the fund's #1 holding and is still in the top 5... analysts had pegged $0.54 EPS and $1.4 B in revenue. The company came through with $0.61 despite a shortfall on revenue $1.324 - meaning the business they are winning is becoming even more profitable. Still too early to see how the street treats it; sometimes there is such a focus on 1 line item or the other - bottom line is stock price is a function of earnings. Earnings were great; backlog was solid (+8%) but not quite so exceptional as some of the others in the group.
- McDermott International, Inc. (MDR) today reported net income of $140.4 million, or $0.61 per diluted share, for the 2007 third quarter, compared to net income of $102.7 million, or $0.45 per diluted share, for the corresponding period in 2006.
- McDermott’s revenues in the third quarter of 2007 were $1,324.0 million, compared to $1,118.3 million in the corresponding period in 2006. The 18.4 percent growth in Company revenues, compared to a year ago, was led by the Offshore Oil & Gas Construction segment which increased $142 million, or 32.3 percent. The revenues in the Power Generation Systems and Government Operations segments increased 6.2 percent and 20.3 percent, respectively.
- Operating income was $155.2 million in the 2007 third quarter, a 25.0 percent improvement compared to $124.1 million in the 2006 third quarter. The increase in operating income is attributable to continued exceptional performance within the Offshore Oil & Gas Construction segment combined with improved results from the Power Generation Systems segment.
- “With the continued strength of McDermott’s Offshore Oil & Gas Construction business, we believe the 2007 fourth quarter will complete a remarkably strong year at McDermott.” (hint hint)
- At September 30, 2007, McDermott’s consolidated backlog was $9.3 billion, compared to $8.6 billion at September 30, 2006 and $8.9 billion at June 30, 2007.
Offshore Oil & Gas business is booming. Power Generation Systems was growing but relatively slow. These are the 2 big pieces of business with a smaller growing component of government business, which also grew very well. I am very satisfied with these numbers. No discussion of 2008 estimates at this time in the earnings release; perhaps in the conference call. They obviously hinted Q4 2007 is looking really good.
MDR had $2.40 for 2007 estimates, they beat this quarter by $0.07 and next quarter is only $0.53 so I am going to estimate at minimum they beat by $0.07 next quarter to, since its lower than this quarter's earnings. So that's about $0.14 of EPS addition, so that $2.40 turns to $2.54. Next year is at $2.72 which I don't believe for a minute. At $57 McDermott is valued at roughly 22-23x this year's estimates. Next year should surpass $3.00 in earnings. Do the math.
Long McDermott in fund; no personal position
