Balanced Risk-Reward for Chicago Bridge & Iron Co. - Analyst Blog

On Mar 13, 2014, we issued an updated research report on Chicago Bridge & Iron Company N.V.  CBI. The company reported strong fourth-quarter 2014 results, which included a 2.56% positive surprise. The company also added the E-Gas Technology business to its portfolio in the last reported quarter.

The key drivers behind the company's impressive performance were increased backlog levels, growing demand for energy across the globe and CBI's diligent operational execution while remaining focused on safety. The company's unique business model also aided the results.

CBI has delivered positive earnings surprises in two of last four quarters, with an average beat of 9.03%.

This Zacks Rank #3 (Hold) company has a broad diversity within the entire energy project spectrum, with a significant portion (approximately 55%) of revenues derived from projects outside the U.S. Moreover, it is one of the few engineering, procurement and construction and process technology contractors with in-house fabrication facilities, which enable it to offer modular construction wherever feasible.

CBI is also a leader in the LNG storage market where it expects very strong near-term opportunities for winning contracts, especially in LNG/low temperature storage systems (petrochemicals), where it plans to gain market share.

However, the company operates in a highly competitive building and heavy construction industry which has low barriers-to-entry. Also, there are adequate financial and technical resources available to the competitors making the competition even stiffer. 

Additionally, the company's long-cycle nature of business makes it more prone to delays in funds and increases the risk of bad debts. The time gap between the contract win and payment may result in significant fluctuations in cash flow and earnings for the company.

Also, the company's weak cash and balance sheet position could pose challenges in the near term.

Based on the quarterly performance, CBI reiterated its guidance for full-year 2014. The company expects revenues in the range of $12.6–$13.2 billion with adjusted earnings per share EPS in the band of $4.80 to $5.65.  The Zacks Consensus Estimate for 2014 earnings is currently toward the higher end of the company's guidance.

CBI's performance led to both positive and negative estimate revisions over the past 30 days. The Zacks Consensus Estimate for 2014 decreased 0.8% and is currently pegged at $5.22 per share. For 2015, on the other hand, the Estimate rose 2.25% to $5.91, reflecting scope for the company's growth in the long run. The expected long-term earnings growth rate for the stock is 14.5%.

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Investors interested in this sector could also consider MasTec, Inc. MTZ, Primoris Services Corp. PRIM and Quanta Services, Inc. PWR. All of these have a Zacks Rank #2 (Buy).