BUSINESS
MRC Global Inc., through its subsidiaries, distributes pipes, valves, fittings, and other infrastructure products and services to the energy, industrial, and gas utility end-markets in the United States, Canada, and internationally. It offers ball, butterfly, gate, globe, check, diaphragm, needle, and plug valves; and other products, such as lined corrosion resistant piping systems, control valves, valve automation, and top work components, as well as valve modification services; and measurement, steam, and instrumentation products. The company also provides carbon steel fittings and flanges comprising carbon weld fittings, flanges, and piping components; stainless steel, alloy and corrosion resistant pipes, tubing, fittings, and flanges; and carbon line pipes.
INVESTMENT RATING
MRC’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.
MRC Global has a current Value Trend Rating of C (Low Neutral).
This rating combines contradictory signals from two proprietary PTR measures of a stock’s attractiveness. MRC Global has a poor Appreciation Score of 28 but a slightly positive Power Rating of 65, resulting in the Low Neutral Value Trend Rating.
MRC Global’s stock is selling well above targeted value. The current stock price of $11.78 compares to targeted value 12 months forward of $9.
This low appreciation potential results in an appreciation score of 28 (72% of the universe has greater appreciation potential.)
MRC Global has a Power Rating of 65. (This slightly positive Power Rating indicates that MRC’s chances of achieving attractive investment performance over the near to intermediate term are only average.)
Factors contributing to this slightly positive Power Rating include: recent price action has been favorable; and the Metals Service Centers – Wholesale comparison group is currently in a modestly favorable position. An offsetting factor is MRC’s earnings estimates have fallen very significantly in recent months.
INVESTMENT PROFILE
MRC Global’s financial strength is average. Financial strength rating is 46.
Relative to the S&P 500 Composite, MRC Global Inc has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that MRC is extremely high risk. All factors are relative weaknesses. Relative weaknesses for MRC Global include: low historical profitability, low financial strength, high stock price volatility, low expected growth, and high earnings variability. MRC Global’s valuation is moderate: low dividend yield, low P/E ratio, and moderate price/book ratio. MRC has unusually low market capitalization.
CURRENT SIGNALS
MRC Global’s current operations are strong. Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; and rising leverage.
MRC Global’s current technical position is very strong. The stock price is in a 2.8 month up move. The stock has appreciated 24.9% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Significant positive changes in investment behavior have recently occurred for MRC Global Inc (NYSE: MRC): the stock rose on very heavy volume.
Minimal positive changes in fundamentals have recently occurred for MRC Global Inc (NYSE: MRC): significant quarterly earnings acceleration occurred.
In light of this we are reviewing our current Overall Rating of C. This review will be completed in the next several days.
MRC Global Inc (NYSE: MRC) stock closed at $11.78 on 2/14/24 after a major increase of 13.5%. Moreover, exceptionally high trading volume at 484% of normal accompanied the advance. The stock has risen 12.5% during the last week and has been strong relative to the market over the last nine months.
CASH FLOW
In 2022, MRC Global experienced a very significant reduction in cash of -$16.0 million (-33%). Sources of cash were much lower than uses. Cash generated from 2022 EBITDA totaled +$178.0 million. Non-operating uses consumed -$5.0 million (-3% of EBITDA). Cash taxes consumed -$39.0 million (-22% of EBITDA). Re-investment in the business amounted to -$157.0 million (-88% of EBITDA). On a net basis, debt investors provided +$27.0 million (+15% of EBITDA) while equity investors withdrew -$20.0 million (-11% of EBITDA).
MRC Global’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Mrc Global Peer Group. (Since 2020 Non-operating Income, %EBITDA has experienced a very sharp recovery.) In most years, MRC Global was in the second quartile and lower quartile. Currently, MRC Global is above median at -3% of EBITDA (-$5.0 million).
MRC Global’s Cash Taxes, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by an opposite trend for the Mrc Global Peer Group. In most years, MRC Global was in the lower quartile and third quartile. Currently, MRC Global is at the lower quartile at -22% of EBITDA (-$39.0 million).
MRC Global’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Mrc Global Peer Group. (Since 2020 Business Re-investment, %EBITDA has experienced a very sharp decline.) In most years, MRC Global was in the top quartile and lower quartile. Currently, MRC Global is below median at -88% of EBITDA (-$157.0 million).
MRC Global’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Mrc Global Peer Group. (Since 2020 Debt Investors, %EBITDA has experienced a very sharp recovery.) In most years, MRC Global was in the lower quartile and top quartile. Currently, MRC Global is slightly above median at +15% of EBITDA (+$27.0 million).
MRC Global’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Mrc Global Peer Group. In most years, MRC Global was in the lower quartile and second quartile. Currently, MRC Global is slightly above median at -11% of EBITDA (-$20.0 million).
MRC Global’s Change in Cash, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Mrc Global Peer Group. In most years, MRC Global was in the third quartile and top quartile. Currently, MRC Global is substantially below median at -9% of EBITDA (-$16.0 million).
MRC Global’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Mrc Global Peer Group as well. In most years, MRC Global was in the lower quartile. Currently, MRC Global is lower quartile at +1%.
PROFITABILITY
MRC Global’s return on equity has improved very significantly since 2013. The current level is 24.6% versus the high of 11.4% and the low of -80.1%.
This very significant improvement was due to strong positive trend in pretax operating return supported by strong positive trend in non-operating factors.
The productivity of MRC Global’s assets rose over the full period 2013-2023: asset turnover has exhibited a volatile overall uptrend.
Reinforcing this trend, pretax margin has exhibited a volatile overall uptrend that accelerated very sharply from the 2020 level.
Non-operating factors (income taxes and financial leverage) had a significant positive influence on return on equity.
MRC Global’s return on equity is upper quartile (24.6%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is at the upper quartile (8.3%) reflecting asset turnover that is above median (1.79X) and substantially above median pretax margin (4.6%).
Tax “keep” rate (income tax management) is at the lower quartile (69.9%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is at the upper quartile (4.23X).
GROWTH RATES
There are no significant differences between MRC Global’s longer term growth and growth in recent years.
MRC Global’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been -3.1% per year. (More recently it has been 11.6%.)
Total asset growth has been -3.9% per year.
Annual E.P.S. growth has been -6.9% per year. (More recently it has been 57.4%.)
Equity growth has been -10.9% per year. (More recently it has been 10.5%.)
No consensus growth rate forecast is available for MRC Global.
Relative to the Mrc Global Peer Group, MRC Global’s historical growth measures are erratic. Revenue growth (-3.1%) has been substantially below median. E.P.S. growth (-6.9%) has been below median. Equity growth (-10.9%) has been lower quartile. Total asset growth (-3.9%) has been lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, MRC Global’s stock price performance has been volatile and significantly below market. Between April, 2013 and February, 2024, MRC Global’s stock price fell -61%; relative to the market, this was a -87% loss. Significant price moves during the period: 1) October, 2020 – May, 2021: +152%; 2) December, 2019 – March, 2020: -69%; 3) January, 2016 – January, 2017: +104%; and 4) December, 2013 – January, 2015: -66%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -21.6% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -21.6% is substantially below median relative to MRC Global Inc Peer Group.
Current 5-year total return performance of -7.4% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of -7.4% relative to S&P 500 Composite, MRC Global’s total return performance is below median relative to MRC Global Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, MRC’s overall valuation is quite low. Four of five factors are lower quartile. The highest factor is the price/equity ratio, followed by the ratio of enterprise value/assets, then by the price/earnings ratio, then by the ratio of enterprise value/earnings before interest and taxes. The lowest factor, ratio of enterprise value/revenue, is lower quartile.
Relative to MRC Global Peer Group, MRC’s overall valuation is low. The highest factor, the price/equity ratio, is at the upper quartile. Ratio of enterprise value/assets is below median. Ratio of enterprise value/revenue is at the lower quartile. Ratio of enterprise value/earnings before interest and taxes is at the lower quartile. The lowest factor, the price/earnings ratio, is near the lower quartile.
MRC Global has a major value gap compared to the median. For MRC to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.43X to 0.56X. If MRC’s ratio of enterprise value/revenue were to rise to 0.56X, its stock price would be higher by $5 to $17.
For MRC to achieve upper quartile valuation relative to the MRC Global Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.43X to 0.69X. If MRC’s ratio of enterprise value/revenue were to rise to 0.69X, its stock price would increase by $11 from the current level of $12.
VALUE TARGETS
MRC’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.
MRC Global’s current Price Target of $9 represents a -21% change from the current price of $11.78.
This low appreciation potential results in an appreciation score of 28 (72% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 28, the moderately high Power Rating of 65 results in an Value Trend Rating of C.
MRC Global’s current Price Target is $9 (+7% from the 2022 Target of $9 but -21% from the 02/14/24 price of $11.78). This slight rise in the Target is the result of a -4% decrease in the equity base and a +11% increase in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple. The forecasted growth has no impact. The forecasted increase in cost of equity has a very large negative impact.
PTR’s return on equity forecast is 27.2% — above our recent forecasts. Forecasted return on equity exhibited a slight, erratic increase between 2014 and 2022. The current forecast is significantly above the 2021 low of 4%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth erratic between 2014 and 2022. The current forecast is below the 2014 peak of 4%.
PTR’s cost of equity forecast is 14.1% — slightly above recent levels. Forecasted cost of equity exhibited a slight, erratic decline between 2014 and 2022. The current forecast is significantly above the 2021 low of 3.1%.
At MRC Global’s current price of $11.78, investors are placing a negative value of $-4 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 17.3% versus a cost of equity of 10.0%.
PTR’s 2024 Price Target of $9 is based on these forecasts and reflects an estimated value of existing assets of $10 and a value of future investments of $-1.
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