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Chicago Bridge & Iron Breaks Ground on Louisiana Power Plant

Zacks Equity Research
Updated

Chicago Bridge & Iron Company N.V. CBI recently announced the groundbreaking for the Lake Charles Power Station, located in Lake Charles, LA. The power station is the new natural gas-fired combined-cycle power plant for Entergy Corporation’s subsidiary, Entergy Louisiana, LLC. This marks the second of three identical power projects that are included in the strategic partnership framework between the companies.

Chicago Bridge & Iron’s work will include the engineering, procurement, construction, as well as commissioning for the 994 megawatt plant. The power plant features advanced-class turbines that facilitate production of clean power generation efficiently. The development of the power generation plants will offer clean, reliable as well as affordable power to the local community, along with generating jobs in the surrounding area.

Existing Business Scenario

Although Chicago Bridge & Iron anticipates multiple opportunities in key end markets including the United States, East Africa and the Middle East, it has been treading rough waters in recent times. The Zacks Rank #5 (Strong Sell) company has gained 14.9% in past three months, underperforming the industry’s growth of 18.6%.

Like most of the companies operating in the energy domain, particularly oil and gas sector, volatility in commodity pricing continues to be a major drag for profitability. This apart, over the past few quarters, the company witnessed a precipitous decline in capital investments that has severely marred its financials.

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Moreover, decreased activity on large cost reimbursable LNG projects in Asia Pacific region, the winding down of several Engineering & Construction projects and the timing of progress on projects in Fabrication Services group have affected revenues. Also, the company’s margins are deeply impacted by rise in cost on IPL and Calpine power projects as well as with execution of its other projects. Decline in both U.S. storage tank work and federal government spending, along with constant project deferrals are proving to be major headwinds.

Chicago Bridge & Iron intends to sell its crowning glory, the Technology licensing business, for roughly $2 billion or more (net proceeds are likely to exceed the company’s entire net debt of about $1.5 billion). During the last reported quarter, its net contract capital position for continuing operations also declined steeply sequentially, which hurt cash flow. With slumping revenues, bleak guidanceand the need for extreme strategic action, we believe that the future looks exceedingly uncertain for the company.

Stocks to Consider

Some better-ranked stocks from the same space are MasTec, Inc. MTZ, NCI Building Systems, Inc. NCS and Rayonier Inc. RYN. While MasTec sports a Zacks Rank #1 (Strong Buy), NCI Building Systems and Rayonier carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

MasTec has outpaced estimates in the preceding four quarters, with an average earnings surprise of 28.1%.

NCI Building Systems has surpassed estimates twice in the trailing four quarters, with an average positive earnings surprise of 9.7%.

Rayonier has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 96.0%.

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