I love finding good deals in an overpriced market. They're difficult to find, but if you look hard enough you'll find them. One of those deals is the Chicago Bridge & Iron Company N.V. (NYSE:CBI), which is currently trading just a few dollars above its 52 week low of $57.73.
Since hitting its 52 week high in April, the stock has been beaten down nearly 30%. Year over year, the company is flat. So what's wrong with the company? There must be something holding the stock back, right? Well, no company is without its issues, but CB&I's fundamentals are much stronger than the company's valuation would suggest.
For those of you who like numbers, below are some of CB&I's important valuation metrics.
Market Cap: $6.44 Billion
P/E (trailing): 12.68
P/E (fye 2015): 10.15
By many of the above measures, CB&I appears undervalued. Consider that the S&P 500 (^GSPC) is currently trading at a little over 19 times earnings and the general contractors industry is trading at 20x. The company also sports a very low PEG of 0.86, thanks to the company's low P/E multiple and expected five year growth rate of 14.67%, which is slightly higher than the industry average.
While the CB&I's stock has underperformed over the past year, the company's financial performance has been strong. First we'll take a look at the company's revenue growth over the past two years.
Click to enlargeCB&I's initial rapid top line growth can be attributed to its $3 billion acquistion of The Shaw Group, which closed in the first quarter of 2013. Now that the integration has largely normalized, we can see that revenue growth has decelerated, but is still trending upwards. For the second quarter 2014, the company announced 16% year over year revenue growth.
In terms of earnings, the company has posted solid results, though with much less consistency than revenue.
Click to enlargeClearly the company is performing well regarding sales and earnings, yet the stock is trading at a valuation level that would be more fitting for a company experiencing stagnant or even negative growth. So what gives? Well, as mentioned earlier, no company is without its problems.
My primary concern with CB&I is that the company has been generating significant amounts of negative cash flow over the past few quarters. For the first quarter, the company reported negative free cash flow of $172.2 million, and for the second quarter that number grew to $260.3 million. While this is worrisome, management has guided towards positive cash flow for the second half of the year. Whether they fulfill this prediction will be an important factor to watch for.
CB&I is well positioned to take advantage of the growing global demand for energy, and the company's massive $32 billion (and growing) backlog is proof of that. Trading at just over 10 times forward earnings, I'm quite enticed to put a few bucks down; right now it seems as though the only direction the stock can go is up. Of course there are still concerns over CB&I's inability to bring in cash; but if you're a believer in the domestic energy story, here's your chance to get in for cheap.
Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in CBI over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.