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Chicago Bridge & Iron Cut In Half In A Month

Chicago Bridge & Iron Cut In Half In A Month
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Just when you were thinking it couldn't get any worse, as the stock bottomed around $13 in late June, Chicago Bridge & Iron Company N.V. (NYSE: CBI)'s second-quarter earnings report came as a shocker.

The engineering, procurement and construction services company revealed a second-quarter loss of $3.02 per share compared to earnings of $1.09 per share a year ago. This belied the consensus estimate that called for earnings of 88 cents per share.

Revenues were down to $1.3 billion from $2.2 billion, short of the consensus of $2.47 billion. The company also announced a comprehensive cost reduction program and suspended its dividend in a bid to reverse the worsening fundamentals.

Stock Skids On Shaky Fundamentals

After closing Wednesday's trading at $16.33, the stock gap-opened Thursday's session lower at $12.80, reacting to the earnings report released Wednesday after the market close. After moving between $10.54 and $12.92, the stock was last seen at $11.25, a plunge of 31.11 percent.

CBI Chart
Source: Y Charts

The stock market is on an extended bull run, with the rally that began post the Great Recession continuing unrestrained, prodded by the economic expansion, which has stretched into the ninth year to earn the distinction of being the third longest since the World War II.

Since bottoming at 676.53 on March 9, 2009, the S&P 500 has gained about 266 percent thus far. In the year-to-date period, the S&P 500 Index has been up 9.50 percent compared to Chicago Bridge & Iron's 65 percent slump, making it one of the worst performers.

The Rally And The Retreat

The post-Recession recovery took Chicago Bridge & Iron from a little over $5 to a peak of around $89.22 (intra-day) on April 4, 2014. Since then, the stock has been caught in a rut.

Almost declining steadily, the stock touched a multi-year low of $13.15 (on a closing basis) and $12.91 (intraday) on June 21, when it began trading ex-dividend. For much of the early June, the $15 level had served as a strong support.

See also: Problem Projects, Cash Burn Weigh On Chicago Bridge & Iron

The Great Leap Of Faith

However, the company's shares were boosted by some good tidings on June 27, when the Delaware Supreme Court ruled in favor of Chicago Bridge & Iron in a legal wrangle with Toshiba Corp (USA) (OTC: TOSYY)'s Westinghouse Electric Company over cost overruns at two unfinished nuclear power plants.

Chicago Bridge & Iron's stock catapulted by 39 percent to $20.02 on June 27. The stock rose to an intra-day of high of $23.08 on June 28.

Apparently, the removal of overhang concerning the $2 billion post-closing adjustment Westinghouse was seeking from Chicago Bridge & Iron company did not merit a huge move such as the one seen on June 27. The stock began to pullback gradually and dropped down to near the $16 level ahead of the Q2 earnings shocker.

With the stock cut in almost half in a month, the takeaway is that when there is no follow through interest in the stock after a strong upward move, such as the one seen in Chicago Bridge & Iron, the best course of action would have been an exit as it violated the $20 level to the downside.

With the company announcing initiatives, including sale of its Technology business and suspension of dividend, to bolster its balance sheet, Deutsche Bank said in a note that there is a clear path for the company's stock can trade toward the $20 range again if the company can execute on these initiatives and avoid further cost overruns.

Now that the stock has hit a $11.50 support level Benzinga outlined in its article dated June 15, downside could be limited, especially with all the remedial actions announced by the company.

At last check, shares of Chicago Bridge & Iron were down 29.15 percent at $11.57.

Joel Elconin contributed to the article.
Image Credit: By Wehoekstra - Own work, CC BY-SA 3.0, via Wikimedia Commons

Posted-In: Earnings News Technicals Movers Trading Ideas Best of Benzinga


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