Shares of McDermott dropped 63% yesterday following news that the company hired turnaround firm AlixPartners for “strategic and operational advice.” Low liquidity, high leverage, and lingering headwinds associated with legacy CB&I-related projects pose elevated risk for the company, Citi analyst Andrew Kaplowitz tells investors in a research note. The analyst admits that he does not know what’s causing McDermott to turn to AlixPartners. He sees a “wide range of possibilities with little visibility to near-term outcomes,” which leads to his continued Neutral rating on the shares. McDermott has a “considerable amount of good assets” that are saleable and customers have an incentive to see the company succeed, says Kaplowitz. However, a working capital unwind is now a “legitimate risk” and it may be harder for McDermott to win work at this point, adds the analyst.
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