On Tuesday, Chicago Bridge & Iron Co. NV (CBI, Financial) (which is headquartered in South Holland, Netherlands interestingly enough) popped 40% after a major victory on a $2.15 billion lawsuit in Delaware Supreme Court.
Westinghouse Electric Co. bought Chicago Bridge’s nuclear business back in 2015, and cost overruns coupled with delays at two nuclear power plants under construction in Georgia and South Carolina caused Westinghouse to file for bankruptcy on March 29. This triggered a $6 billion write-down at the company’s Japanese parent Toshiba Corp. (TSE:6502, Financial). For the effort, Chicago Bridge took a billion dollar loss.
This ruling stabilizes the stock and paves the way for the company to get back to profitability, which at this price puts the stock squarely in any value investor's sights.
Analyst chatter
Baird: “CBI is becoming significantly more investible, even though ample balance sheet and operational risks remain.”
Wells Fargo: “The stock can gradually close multiple gap with peers if the company repairs its balance sheet in next 12 to 18 months.” Fargo upgraded CBI to outperform.
Deutsche Bank: “Ruling drastically reduces potential amount owed to $70M from $2B.”
Credit Suisse: “Seems likely the Westinghouse case will be settled for ‘effectively zero.’”
Citi: “Court Ruling Lifts Cloud Over Chicago Bridge & Iron Shares.”
Between 2013 to 2016, Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) owned $400 million worth of shares in the $80s, selling out at a considerable loss. That was not the right time, but now is the time to buy.
Analysts had already baked the losses into the stock price, which is the big reason for the bounce, but the company’s fundamentals are still very attractive. Over the next two years, Chicago Bridge will likely earn north of $8 a share in net EPS and push its book value up in the $21 range. For a company that trades at $20 per share, its stock is on sale.
Chicago Bridge & Iron is a global engineering and construction company. It specializes in large, complex construction and development projects, with a primary focus on energy infrastructure. I would not say it has a moat, but the company’s advantages include a strong track record dating back to the early 1900s, clear focus on energy infrastructure and  a vertically integrated service offering. It has a solid backlog, which is why the EPS is so high, but with the ruling out of the way, I think the company will likely get back to consistently producing net income.
Can it earn $4 to $5 a share per year over the long term? Probably, or do even better. Chicago Bridge & Iron expected full-year earnings in the range of $3.50 to $4 per share in the May earnings call, with revenue in the range of $9.5 billion to $10.5 billion. Give it a quarter or two and we will see what management says it expects the future to look like.
One of the great aspects of the company is it has the ability to shift with market changes. Energy infrastructure will not be the same in 10, 20, 30 years as it is today, yet energy consumption will continue to rise. To me, this means Chicago Bridge & Iron could be a great long-term hold, especially at this price.
Disclosure: I do not have a position in CBI.
