On Dec 27, we reiterated our Neutral recommendation on
Chicago Bridge & Iron Company N.V.
) largely due to its modest third quarter performance. We prefer
to remain on the sidelines until we see substantial organic
growth and improvement in the overall industry environment.
Why a Neutral Recommendation?
On Oct 30, Chicago Bridge & Iron Company reported
third-quarter 2013 adjusted earnings of $121.3 million or $1.12
per share, in line with the Zacks Consensus Estimate. Adjusted
net income improved 46.7% year over year on the back of strong
project activities during the quarter.
The growth was primarily driven by healthy revenue growth
across all the three legacy business units of the company due to
rising demand for energy infrastructure, especially in the LNG,
gas processing and oil and gas markets across the world. The
company's acquired business units drove the majority of the
In the quarter, all the four segments of the company reported
an increase in revenues. The key growth drivers were increased
activities in LNG and gas processing work in the Asia-Pacific,
robust domestic and international markets, development of shale
gas, petrochemical and LNG, increased business in heat transfer,
and licensing and new deal wins from both private and public
Recently, the company received a number of new EPC
(engineering, procurement and construction) contracts that
included a $70 million contract from Saudi Arabia-based Petrofac
Co. Ltd for constructing crude oil storage tanks and another
$1-billion worth contract from Ingleside Ethylene LLC for the
Texas-based ethane cracker project.
The company also received a couple of deals valued at $2.5
billion each in a joint venture with Zachry Industrial, Inc to
convert the existing LNG regasification terminal in Freeport,
Texas into an LNG liquefaction terminal.
However, the company's geographically diversified business
exposes it significantly to the fluctuations in foreign
currencies. In addition, the company is highly exposed to the
risks of various external operational hazards including change in
political or economic conditions.
Moreover, the company's weak cash and balance sheet position
does not facilitate enough flexibility to make investments and
make strategic acquisitions. Its operating cash flow has
decreased by more than 240% in the last reported quarter, whereas
cash and cash equivalents dipped about 17.1% year over year.
Thus, we prefer to remain on the sidelines and maintain our
Neutral recommendation on Chicago Bridge & Iron Company.
Other Stocks to Consider
Chicago Bridge & Iron Company currently has a Zacks Rank
#3 (Hold). Investors interested in the heavy industries sector
Quanta Services, Inc.
). While VSE carries a Zacks Rank #1 (Strong Buy), Quanta and ITT
both carry a Zacks Rank #2 (Buy).
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