Prudent Stock: 12/3/07

(MDR) McDermott International, Inc., through its subsidiaries, operates as an energy services company worldwide. It operates in three segments: Offshore Oil and Gas Construction, Government Operations, and Power Generation Systems. The Offshore Oil and Gas Construction segment engages in the front-end design and detailed engineering, fabrication, and installation of offshore drilling and production facilities; and installation of marine pipelines and subsea (where the real growth is at) production systems. It also provides project management and procurement services. The Government Operations segment supplies nuclear components and provides various services, including uranium processing, environmental site restoration services, and management and operating services for various U.S. Government-owned facilities, primarily within the nuclear weapons complex of the U.S. Department of Energy (this is an undervalued component of their business). The Power Generation Systems segment designs, engineers, manufactures, constructs, and services utility and industrial power generation systems, including boilers used to generate steam in electric power plants, pulp and paper making, chemical and process applications, and other industrial uses.

MDR has shown a consistent and predictable history of financial performance but their last quarter showed some slowing in the growth rate, they missed the quarter and the stock got hammered. This was an over reaction in my humble opinion because the stock had more than doubled YTD. This was coupled with the decline in the OSX and slowing world wide economic growth caused a precipitous fall in stock price. Its current EPS is $2.89 per share, and has a forecasted earnings growth rate of 27.00%, and a current PE of 18.

Given the companies forecasted earnings per share, forecasted earnings growth, profitability, given current interest, and inflation rates the stock is undervalued on a growth to PE ratio. If you look at the chart the stock has bounced off its long-term up-trendline nicely, so it looks good technically as well and is a good time for me to start accumulating.