Keybanc Sees Babcock & Wilcox Management Initatives Eventually Translating Into Revenue Growth

Afzal saw management's "migration to renewables/energy efficiency businesses as eventually translating into revenue growth and a multiple rerate." The green energy initiative will eventually offset the damage done by poor coal industry trends, according to the analyst. Afzal believes positive results would show as early as 2H16 while creating an organic revenue inflection point in 2H17.

Related Link: CFO Apker Buys 12,000 Shares Of Babcock & Wilcox Enterprises At $16.58/Share

'Underappreciated' Transition

At time of writing, Babcock & Wilcox's coal business was estimated to be about one-third of its 2016 revenues while shrinking to less than one-quarter in 2018, according to Afzal. "We think the inclusion of waste to energy to meet state renewables mandates is currently underappreciated and could lead to an eventually greater rerate vs. our current estimate," stated the analyst.

To provide "cushion" for management's renewable energy initiative, the analyst lowered FY17 EPS estimates from $1.64 to $1.53.

At time of writing, Babcock & Wilcox enterprises traded at $7.01, up 1.80 percent Tuesday.