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MRC Global (MRC) Displays Solid Prospects Despite Headwinds

MRC Global Inc. MRC continues benefiting from its presence in diversified end markets, including upstream production, gas utilities, midstream pipelines, downstream, industrial and energy transition. It expects revenues from its business in the gas utility sector to grow 20-25% year over year in 2022, driven by enhanced gas distribution system integrity management and ramped-up new home-construction activities.

Revenues from its business in the downstream, industrial and energy transition sectors are likely to increase 25-30% for the year, supported by solid customer activity, project turnaround activity and maintenance, repair and operations (MRO) activities. For 2022, MRC predicts revenues of $3.3 billion, suggesting growth of 24% from the prior-year reported figure, while adjusted EBITDA is expected to be $230 million.

MRC Global is poised to become more competent on attractive contract wins and projects. Its gas utility sector will likely benefit from several contracts awarded by the largest gas utilities in the United States. Also, MRC’s businesses in the industrial, downstream and energy transition sectors are expected to gain from contracts with some of the largest refiners in the United States. MRC generated 33% of revenues from valves, automation, and measurement & instrumentation product line in the second quarter of 2022.

MRC Global’s measures to reward its shareholders through dividend payments are impressive. In 2021 and during the first six months of 2022, MRC paid out dividends worth $24 million and $12 million, respectively. Its strong cash flow generation capacity will help add shareholder value in the quarters ahead.

However, MRC Global has been dealing with escalating costs and expenses over time. In second-quarter fiscal 2022, MRC’s cost of sales increased 21.4% on a year-over-year basis. Also, its selling, general and administrative expenses rose 18.8% year over year. Inflation in raw material, and other costs and challenges related to labor and supply-chain constraints are expected to persist in the near term affecting its margins and profitability.

Foreign exchange is a major headwind to MRC Global due to a considerable percentage of its revenues coming from outside the United States. In the second quarter, foreign exchange woes had an adverse impact of 7% year over year on its International segment’s revenues. A decline in the value of the local currencies of foreign markets relative to the U.S. dollar might hurt MRC’s top line in the quarters ahead.

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Zacks Investment Research

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In the past six months, this currently Zacks Rank #3 (Hold) stock has gained 0.3% compared with the industry’s rise of 8.3%.

Zacks Rank & Stocks to Consider

Some better-ranked companies from the industrial products sector are discussed below:

Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1 (Strong Buy). AIT delivered a trailing four-quarter earnings surprise of 22.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.

AIT’s earnings estimates have increased 5.8% for fiscal 2023 (ending June 2023) in the past 60 days. Its shares have rallied 17.3% in the past six months.

Greif, Inc. GEF presently has a Zacks Rank #2 (Buy). GEF delivered a trailing four-quarter earnings surprise of 22.9%, on average.

GEF’s earnings estimates have increased 0.4% for fiscal 2022 (ending October 2022) in the past 60 days. Its shares have risen 20.1% in the past six months.

Valmont Industries, Inc. VMI presently has a Zacks Rank of 2. VMI’s earnings surprise in the last four quarters was 13.7%, on average.

In the past 60 days, Valmont’s earnings estimates have increased 3.8% for 2022. The stock has surged 33.6% in the past six months.

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