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Chicago Bridge and Iron (CBI - $31) is one of the premier international engineering and construction (E&C) firms that is often overlooked. Even though shares have generated a 72% return over the past 52 weeks, compared to 12% for the S&P 500, investors should have ample remaining capital gains potential out to 2013. CBI is a cyclical growth stock trading at a reasonable PE ratio.

Founded in 1889, CBI designs and builds oil refineries, storage tanks, LNG terminals and other energy infrastructure projects. Over 90% of projects are energy related. As overall energy consumption increases globally, the need for additional infrastructure and upgrades/expansion of existing facilities will continue to grow. CBI is very active in the water and wastewater business along with power generation. Hidden inside CBI is nuclear power plant E&C expertise, as CBI constructed 75% of containment vessels currently operating in the US. With the economic downturn and temporarily depressed energy prices in 2009, many construction projects were put on hold. Many of these are starting to come out of mothballs, and CBI is getting a nice bump in business.

CBI is a mid- to late-cycle company as infrastructure projects are closely tied to energy consumption and general economic growth. More than 80% of its business is non- US and over 90% is related to energy infrastructure, giving investors both international and energy sector exposure.

Earnings are estimated at $2.00/shr this year, $2.40/shr to $2.45/shr in 2011 and $2.80/shr to $2.85/shr in 2012. While earning could grow at a 17% to 20% clip over the next 2 years, shares are trading at 15 times 2010 earnings and 13 times 2011 estimates.

CBI’s historic PE ratio follows its business cycle and ranges from 12 to 22. Early-cycle PE ratios range from 12 to 17, mid-cycle from 16 to 19, and late-cycle from 18 to 22. CBI offers both earnings growth and PE expansion, neither of which is fully priced into its current market price.

Business has been strong; with almost a record $7.2 billion in back log projects and annual new awards running between $4.0 and $4.5 billion. Revenues over the next 12 months are estimated at $4.5 billion. These are important numbers for an E&C firm, and CBI continues to improve on them coming out of the recession.

Management has a history of conservative guidance. Over the past 4 quarters, performance has matched expectations once and surpassed estimates the balance of the year by between 5.8% and 9.3%. During the last 90 days, analysts have been raising earnings estimates.

The dividend was suspended in early 2009. With improving profits, a minor dividend reinstatement should be forthcoming. CBI offers a dividend reinvestment and direct stock purchase plan. The company carries very little debt at around $120 million.

If management delivers on $2.80 earnings in 2012, a mid-cycle PE of 14 to 16 could generate share prices around $40. Although CBI shares have had a great run, there should be more gains ahead for patient inventors. The easy money has been made; now it will take investor patience to realize CBI’s potential 15% to 18% annual returns.

More information on CBI can be found in a previous article here.

The latest investor presentation (email registration required) is here.

I have owned CBI since 1997 and have experienced first hand the quality of management. While the British LNG terminal project was difficult for a few years, performance is back on track. CBI's E&C exposure compliments the usual oil or natural gas positions in one's energy portfolio. I consider CBI to be a long-term core energy holding.

As always, investors should conduct their own due diligence, should develop their own understanding of these potential opportunities, and should determine how it may fit their current financial situation.

Source: International E&C Makes Chicago Bridge and Iron a Long-Term Core Energy Holding