We are reaffirming our Neutral recommendation on
Chicago Bridge & Iron Company
). The company delivered a solid fourth-quarter performance with
earnings up 11% year over year and top-line growth of 32%. CBI
benefited from the rising demand worldwide for energy
infrastructure, especially in the LNG, gas processing and oil sands
Projects from around the world drove the upside during the year.
Chicago Bridge & Iron is very positive about the increase in
order activity in the LNG division, but market uncertainties
increase the possibility of cancellations or push-outs that may
impact the cash flow and earnings of the company going forward.
Chicago Bridge & Iron is expected to benefit from the strong
and growing energy infrastructure market, especially the liquefied
natural gas (
). LNG is the company's strongest business, supported by its
ability to participate in multiple stages of development and strong
base for investments.
The company is one of the few engineering, procurement and
construction (EPC) and process technology contractors with in-house
fabrication facilities, which allow it to offer customers the
option of modular construction, wherever feasible.
Modular construction, in contrast to the traditional onsite
"stick built" construction, enables modules to be built within a
tightly monitored shop environment and allows better quality
control, minimizes weather delays and expedites schedules. This
leads to faster lead times ultimately bringing in repeat
In addition, EPC opportunities in gas processing look promising
for the upcoming two years (2012-2013), given the attractiveness of
shale gas for petrochemical producers, who intend to expand and
construct new production facilities for ethylene and propylene.
Chicago Bridge & Iron is the leader in the LNG storage niche
market. The companyexpects very strong near-term award
opportunities in this segment specifically for LNG/low temperature
storage systems (petrochemicals), an area where CB&I plans to
aggressively capture market share.
In addition, the waste and waste water tanks, mineral processing
storage and power applications such as liquefaction/vaporization
and storage facilities are expected to be particularly strong in
emerging markets, where we expect the most industrial and
infrastructure growth. CB&I has been expanding into the mining
sector, which should provide additional opportunities and some
sector/geographic diversification around oil & gas.
However, the business is dependent upon major construction
projects from clients, the unpredictable timing of which may result
in significant fluctuations in cash flow and earnings between the
award of the project and payment under the contract.
Revenue and earnings may be adversely affected by a reduced
level of activity in the hydrocarbon industry, especially in light
of the global financial and economic crisis.
Chicago Bridge & Iron currently holds a Zacks Rank #3 which
implies a short term Hold rating on the stock.
CHICAGO BRIDGE (
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