Chicago Bridge And Iron Says It's Solid

| About: Chicago Bridge (CBI)

In its 2013 guidance conference, the CEO and President of Chicago Bridge & Iron (NYSE:CBI), Philip Asherman, stated:

It's also worth mentioning that our current guidance for this year is solid.

Solid. When the CEO of a company calls a projection of 18% growth "solid," that stock is worth a longer look.

Eliminating confusion right from the start, Chicago Bridge and Iron is no longer headquartered in Chicago, Illinois but rather in the Netherlands. As well, CB&I's focus is no longer on building bridges nor is it an iron ore miner or iron smelter. Curiously, even by its own description, CB&I does not exactly wear a label: "the most complete energy infrastructure focused company in the world." CB&I strives to meet whatever goals a project warrants whether it be design, engineering, fabrication, construction, maintenance or management. End markets include the gas processing, liquid natural gas, refining, oil sands, petrochemical, power, government and offshore industries.

Shortly after building bridges in 1889, CB&I quickly became known for its design engineering. It claims the distinction of innovating many industry milestones and industry accomplishments such as the world's largest steel water reservoir and world's largest vacuum distillation tower. CB&I has expanded its organic capabilities and services through acquisitions. It takes great pride in being able to provide total solutions anywhere, while being flexible, safe and timely. CB&I holds a core value of improving the quality of life for people worldwide in an environmentally responsible manner.

All journeys, even a company's, have points of transformation. CB&I's 2007 acquisition of Lummus Global was just such a transformation point. Lummus provided process technologies, including 70 proprietary, to the oil and gas and petrochemical industries. From 1997 to 2007, Lummus licensed about 40% of all the projects worldwide in the ethylene and olefins arenas. The acquisition gave CB&I a strategic stronghold in providing a full range of hydrocarbon technology services to clients. The technologies change the process from capturing olefins as by-products to on-purpose production. To date, through its Lummus Technology unit, CB&I has the most complete portfolio of chemical technologies. It is the market leader in licensing ethylene technology as 40% of the global capacity relies on CB&I's Lummus Technology unit. Projects for Lummus are now pacing at a rate where awards for a 9-month period are greater than the awards in the previous 12 months.

In December 2012, CB&I's journey reached its latest transformation point. Shareholders approved the acquisition of Shaw Group. Shaw Group was focused on power generation and government services. The CB&I/Shaw combination put the "most" in the description of "one of the most complete energy focused technology, engineering, procurement, fabrication, construction, maintenance, and associated services companies in the world." Where CB&I historically held a moderate competitive position relative to the power sector, 38% of Shaw Group's $6 billion in revenue in 2012 was derived from that sector. Significant growth through 2035 is expected of the power sector.

Presently, there are 95 energy-related projects identified but not yet awarded where the capital expenditures are expected to be greater than $1 billion. Such projects are expected to require in aggregate an average of 100,000 employees per year with project life cycles of 3 to 6 years. With Shaw, CB&I's manpower of 50,000 skilled, geographically-dispersed employees gives it the capability to pursue these mega-projects.

CB&I's 2013 guidance was for revenue of $6.3 to $6.7 billion, a healthy 18% increase over 2012. The project backlog is $28 billion. CB&I is debt-free and has $615 million in cash. Earnings per share are projected at $3.35 to $3.65, an increase of 17% over 2012 at the midpoint of the range.

It is important to note the revenue and EPS guidance excludes Shaw. It is also pertinent to consider that the Shaw transaction will be financed by $1.9 billion of debt. Earnings per share are expected to be double-digit accretive in the first year (exclusive of transaction-related costs).

Analysts project a five-year growth estimate of 23.6% for CB&I. That makes the YPEG ratio equate to over $90 on a stock that just broke through the $50 mark a month ago. CB&I has a track record of 15% growth the past five years and nearly 20% the past ten.

When a company with a track record and growth estimates like CB&I calls its current year's projection of 18% growth "solid" and when that projection excludes the positive impact of a major acquisition, it's worth more than just a look. It may well be worth a slot in one's portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I belong to an investment club and will likely recommend CBI as an investment option at the March meeting.