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Why McDermott International Inc. Stock Is Rallying Today

By Matthew DiLallo – Nov 5, 2018 at 3:43PM

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The energy engineering and construction company gave its investors reason to cheer.

What happened

Shares of McDermott International Inc. (MDR) rose more than 10% by 2:45 p.m. EST on Monday as investors reacted positively to the energy engineering and construction company's Investor Day.

So what

McDermott is coming off an ugly week, with shares plunging 40% last Wednesday after it reported highly disappointing third-quarter results. Among the many issues is that the company recorded $744 million in charges on three projects that haven't performed as well as expected.

Petroleum storage tanks under construction.

Image source: Getty Images.

However, the stock has started rebounding from that drop after McDermott hosted an Investor Day to provide more details on its turnaround plan. Among the items the company discussed was that the three underperforming projects are outliers in its portfolio, as the rest of its projects are progressing as expected. Furthermore, the company noted that it has a strong backlog of opportunities due to the recovery in the oil market, pointing out that there is currently an $80.3 billion revenue opportunity in the markets it serves, the highest in its history. Finally, the company said that it strengthened its balance sheet by securing a credit facility increase and selling preferred stock. Because of those factors, the company sees much better days ahead.

Now what

While McDermott has struggled recently, the company believes that the recovery in the oil market positions it for significant growth as it captures opportunities to build new projects. Those projects should enable the company to grow revenue and profitability, as long as it doesn't have any more outliers. However, given the company's execution issues in the past, investors might want to watch this energy stock from the sidelines until it shows those problems are definitely in the rearview mirror.  

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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