Is MRC Global Inc Set for a Rebound?

After a recent weak earnings report and numerous analyst downgrades, shares of MRC Global (NYSE: MRC  ) did something remarkable. Instead of collapsing even further after the initial 15% plunge, the company's stock started heading back up. Such a scenario is a signal that the analysts were too focused on the short-term problems and not the long-term potential.

MRC Global is a distributor of pipe, valve, and fitting (PVF) products and services to the energy and industrial markets. The company is working on capturing a larger share of global spending from energy companies that heavily rely on their products and services domestically.

With Brent crude prices hovering above $105, it's no wonder that this company's stock held up on disappointing news. The company recently expanded contract agreements with the likes of BP plc (NYSE: BP  ) and Chevron Corporation (NYSE: CVX  ) , which offer potential for international expansion. In addition, a couple of accretive deals position the company for a global push.

Global growth initiatives
MRC Global recently purchased a few firms to expand its global operations, which is important as the majority of the major energy firms spend up to 75% of their capital budgets outside of the U.S. The company bought Flangefitt Stainless Ltd., headquartered in England, to increase stainless steel and alloy product lines while buying Stream AS from Norway to increase offshore capabilities and technologies. The combined purchases produced $288 million in revenue during 2013 and will aid international expansion in Europe to start. MRC envisions this new division leading to expansion in Southeast Asia and Australia down the road.

The Stream business is interesting since the company serves the Norwegian Continental Shelf with potential for easy expansion to the U.K. Continental Shelf via BP. The deal immediately lifts offshore revenue to 8% of revenues, up from a negligible 2%.

MRC Global expects international revenue to reach $900 million this year and surpass $1 billion in 2015. With annual revenue in excess of $5 billion, the international segment will remain relatively small, especially in comparison to global capital spending.

Recent Chevron award
The recent contract expansion with Chevron highlights the global growth opportunities with existing customers. Chevron is the biggest customer for MRC Global, though the deal in February only just now adds Australia, Kazakhstan, and Thailand to the areas of support. The company expects its Thailand operations to provide a base of support for all of Southeast Asia in the future.

Chevron is a massive global energy firm with annual revenues approaching $230 billion. The company operates in about every corner of the globe, making it an ideal opportunity to streamline operations to one preferred PVF supplier. Chevron had a massive annual capital budget of nearly $42 billion last year. Only a fraction of that money is spent on the PVF products and services, but MRC Global could easily capture more market share.

The recent continuation of the BP contract provides MRC with another major energy customer that continues to utilize its services for decades. The recent purchase of Stream also provides an opportunity to expand work with BP to include the offshore markets. For the last four quarters, total revenue was only $82 million, providing opportunities for more global expansion.

Bottom line
Though MRC Global hit a bump in the road when it reported fourth-quarter 2013 earnings back in February, the company's stock quickly rebounded due to long-term prospects for growing the PVF business internationally. A few recent contracts and accretive add-on acquisitions set MRC up for taking market share with existing customers that spend the vast majority of their capital outside North America. While analysts were downgrading the company's stock at 52-week lows, savvy investors were picking up shares on the cheap. Even with the bounce, the stock only trades at 13 times the company's forward earnings, providing investors with a compelling value.

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