McDermott International (MDR) will see an increase in order activity as the construction cycle turns in its favor, and demand is expected to grow for the platforms and subsea infrastructure this offshore construction company builds, says John Keller, Vice President in Equity Research with Stephens Inc.
“You’ve seen a couple of good years of drilling activity on a global basis, and the construction cycle tends to lag drilling 18 to 24 months as a general rule,” said Keller. “As a result, we should be coming into a period in 2013 where McDermott is going to get a large number of awards. There should be very strong bidding flow and order activity.”
Keller says offshore makes for a better long-term investment thesis due to the secular nature of the growth, and he says given the slow movement of the major oil and gas companies in years-long projects offshore, this segment is less shaky when compared to others in energy production.
“As you look at other parts of the globe, I think the fundamental outlook for the offshore sector in general is pretty stout. You’re underpinned by the deepwater, not only in the core markets — the Gulf of Mexico, Brazil, West Africa — that have been and look to remain strong, but also with the proliferation of deepwater development in other parts of the world,” Keller said.
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