MDR’s Shares To Fall To Reflect Spin Off Of B&W

Analysts at Citigroup reiterate their "buy" rating on McDermott International Inc MDR. The target price for MDR is set to $30.50. Citigroup says, “As previously discussed, we expect a fair amount of volatility for the shares of both B&W and J. Ray. This viewpoint suggests that post spin off, there will be a transition period or “shake out” as the investor base shifts to reflect the fact that B&W and J. Ray are now stand alone entities and essentially pure plays on different end markets…. At the start of trading on 08/02/10, we would expect the value of each MDR share (i.e. which represents the J. Ray stand alone business – Offshore Oil & Gas) to decline in order to reflect the impact of spinning off the B&W segment (i.e. Government & Power Generation).” “In our opinion, B&W will be sensitive to: 1) the broader economic cycle, 2) U.S. Government spending on nuclear operations, 3) environmental controls spending, and 4) over time, clean energy technologies (i.e. modular nuclear reactors, carbon capture from fossil combustion, etc). Notably, in 2009 62% of revenues came from Power Generation and 38% from Government Operations…. In our opinion, J. Ray will be sensitive to: 1) global capital spending of oil and gas companies for offshore construction services (i.e. in 2009 over 90% of revenues come from outside of North America and about 85% come from the Middle East and Asia Pacific), 2) the discovery of new reserves in offshore areas, and 3) crude oil and natural gas prices,” the analysts add. More Analyst Ratings here