Summary
- MDR again reported additional changes in estimates at legacy CBI projects.
- Though unwelcome news, MDR’s management cannot be blamed for these problematic projects that were undertaken by CBI’s former management team.
- If we believe current 2019 guidance (and beyond), then MDR is well worth the risk.
Source: MDR website
On February 25, McDermott International (NYSE:MDR) reported 4Q18 and full-year results. The stock initially dipped from the results, but did manage to finish up on the day and then continued to trade higher for a few days until a string of down days for the overall market took back some of the post-earnings gains.
Unfortunately—though not so unexpectedly—MDR revealed additional changes in cost estimates at the legacy projects that it absorbed from the CBI merger. On February 13, they had previously announced an additional change in estimate at just the Cameron LNG project, which sent the stock plunging. But the 4Q18 results revealed changes in estimates at the Freeport and Calpine projects as well.
For investors following MDR since the CBI merger was announced, these changes in legacy CBI project estimates have become a recurring theme. Since the first one was announced on July 31, 2018, there have been additional announcements on October 30, 2018, February 13, 2019, and now most recently, February 25, 2019. Below you can see the details of all the announcements, which in total amount to over $1.2B in changes to project estimates that MDR management had not initially accounted for when doing their due diligence for the CBI merger.
