Opinions
David Baskin
Chicago Bridge & Iron Co.
CBI-N
COMMENT
May 12, 2015
Stock price when the opinion was issued
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Just recently bought this. It has definitely lagged in the engineering/construction space. There is a lawsuit with Mitsubishi regarding some nuclear business, which hasn’t been settled yet. That has hung over the stock. This fits into the value/cyclical bent that we need to start revisiting. It certainly plays into the whole game with respect to what Trump is trying to do in revitalizing infrastructure. Because of its always seemingly higher oil/gas exposure, this is another reason it has lagged, but could also be one of the catalyst that drives it out. Trading at 7X forward earnings only.
The kind of torque that he thought he would get from an industrial name. It felt like a Trump stock. He still likes it. They have been plagued by a decline in oil prices and oil drilling activity, because they are still perceived to have a very big oil/gas drilling business, but thinks it is lower than what people think.
The long-term track record is actually quite good. However, they are going through some tough times at the moment. Results haven’t been that great and there might have even been a lawsuit against them. They are building in the oil/gas area which has not been great. There will probably be a better opportunity to get it at a lower price. He likes this long term.
This got crushed this week. They had a poor earnings call, but the following sell-off each day was probably sentiment of Trump’s infrastructure package getting delayed, or taken off the table entirely. Their backlog is still pretty good and valuation is about 4.5X earnings. He likes this is a purchase at this time.
Closed at $18.69, and his model price is $22.97, a 23% upside. There was a hint of some accounting irregularities, and he thinks the bad news is out and the stock looks like it is recovering. On earnings, the mean estimate for 2018 is $1.88, so it is 10X earnings. An infrastructure play, and you can’t get any better than that. Had a positive transit of EBV +1 this week.
They help build infrastructure for the chemical and energy sectors. They were supposed to merge with a similar company to benefit from synergistic cost savings. This is at risk to falling apart as private equity has come in to potentially take out the other entity exclusively. He calls this a hold.
Took a very hard look at this 2 years ago on the thesis that American infrastructure is falling apart. There are thousands of bridges in the US that need to be replaced, tens of thousands of miles of roads and highways that need to be rehabilitated. He thought that surely somebody was going to spend money on infrastructure in the US, and this company would benefit. The problem is the deadlock in the US Congress. Everybody understands that money has to be spent on these things, but Republicans don’t want to do it while Obama is still in office. If you think a Republican will be elected as a president, this would probably be a good thing to buy.