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Wall Street Liked McDermott International's Earnings, and Sent Shares Flying Today

By Tyler Crowe – Feb 23, 2016 at 4:28PM

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A solid earnings beat, and news that iMcDermott's backlog of orders increased last quarter, gave investors some confidence in McDermott's stock.

What: Shares of McDermott International (MDR) are up 12.5% as of 3:30 p.m. EST today after posting a better-than-expected net gain this past quarter.

So What: The bar for McDermott to jump over this quarter was pretty low as consensus estimates compiled by S&P Capital IQ had the company posting a normalized net loss of ($0.12) per share. McDermott easily cleared that hurdle, though, as it posted a net gain of $0.06. The biggest reason for the surprise turnaround was the company's ability to cut costs to improve margins. McDermott's fourth-quarter adjusted operating margin came in at 7.2%, up from 3.6% in the same quarter last year.

Another bright spot for the company was its ability to grow its order backlog. At the end of the quarter, total order backlog was $4.2 billion, up from $3.6 billion last year. The large uptick in orders was a result of winning engineering, procurement, construction, and installation contracts for ONGC in India, and an unnamed operator in Trinidad. 

Now What: One of the items that McDermott has going for it right now that few other oil services companies can claim is that McDermott has a very large market share in the Middle East. Despite the large downturns in oil and gas activity outside the Gulf States, McDermott has secured some large contracts in the region that gives it stable work throughout this downturn. The company did see some revenue declines in the quarter, but the drastic improvement in margins more than made up for it.

If the company can maintain these higher margins, then the decent backlog totals should help McDermott weather this oil market storm until other parts of the world are ready to spend on new major oil and gas development projects.

Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.com or on Twitter @TylerCroweFool.

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