Richard Snow (Trades, Portfolio) is the founder of Snow Capital. Snow looks for companies that are financially strong, but with stock prices that have been depressed due to temporary or intermediate term difficulties. Snow relies on extensive research to determine the probability of a solution, gain confidence in the company’s ability to survive the difficulty, and estimate the value of the stock once the difficulty has passed. Snow believes that when using this strategy, the downside is protected because the stock price is already depressed making it a reasonably safe strategy, yet capable of achieving significant returns.
Richard Snow (Trades, Portfolio) increased his position in Chicago Bridge and Iron (NYSE:CBI) in the last quarter by buying 64,835 shares. The following chart shows his holding history in the company.
Chicago Bridge and Iron is a leading engineering and construction company. The company has an impressive track record of growth. The company's diluted EPS has increased from $3.07 in FY2011 to $4.98 in FY2014. In the same period, its revenues have more than doubled to $12.97 billion aided by the Shaw acquisition. According to sell side estimates, the company's topline and adjusted EPS are expected to grow 5.90% and 11% respectively in the current fiscal.
Chicago Bridge and Iron's business is a long lead time one with high visibility. The company received $2.84 billion in new awards in the last quarter, and its order book stood at $29.4 billion at the end of 2Q FY2015. The company's healthy order book and award wins provide a good visibility into the company's near to medium term revenues which should reassure investors who are worried about recent fall in oil prices and its impact on the company.
Chicago Bridge and Iron should also benefit from acceleration in gas-fired power plants projects in 2015. U.S. markets are showing acceleration in the pace of gas-fired projects to replace coal plant retirements. Chicago Bridge and Iron has been focusing on this market for quite some time. Recently, the company signed a significant strategic agreement for NET Power – CB&I's collaboration with Exelon (EXC), Toshiba (TOSBF) and 8 Rivers Capital. As a part of this agreement, CB&I will be an exclusive partner and contribute the expertise to the engineer, procure, construct, commission and test a 50-megawatt natural gas-fired electricity generating demonstration plant. This will be a first-of-a-kind demonstration plant to validate a new natural gas power system that produces zero atmospheric emissions. If successful, it will represent a potential game-changing opportunity to comply with clean energy regulations.
Chicago Bridge & Iron is trading at 7.29x FY2015 consensus EPS estimates. According to Gurufocus DCF calculator, the company has a business predictability rating of 5-star and margin of safety of 49%.
Out of 20 analysts covering the company, 11 are positive and have buy recommendations, seven have hold ratings and two have sell ratings. Given the company’s low valuations, I recommended buying the stock.
