SNC-Lavalin: Mega-Projects Spell Mega-Deal

| About: SNC Lavalin (SNCAF)

By David Berman

If you’re thinking about walking through the field of beaten-up stocks in search of opportunities after the recent broad market selloff, here’s one idea: Desjardins Securities analyst Pierre Lacroix believes that SNC-Lavalin Group Inc. (SNCAF.PK) is worth a close look, largely because of the number of contracts that the engineering firm has been winning – and not just any old contracts.

“Over the past two years, the firm has won an impressive series of megaproject contracts, including about $1.5-billion in high-margin, low-risk service contracts, will enter the backlog over the next 12 to 18 months,” he said in a note. These projects include work for Saudi Aramco and BHP Billiton Ltd.

“We believe that most of this ‘hidden backlog’ has substantial long-term potential as projects expand into subsequent phases.”

This hasn’t been a good year for SNC’s share price. It has stumbled 16 per cent from its high in January, and of course has been selling off with the broader market in recent trading. The shares are now back to November levels.

But Mr. Lacroix believes that the decline has delivered good valuation with the shares now trading in the low $50-range. Its engineering and construction division trades at 17-times his estimated 2012 of $2.50 a share. To that, he adds $21 a share for the value of SNC’s infrastructure portfolio to get a 12-month target price of about $64. Needless to say, he has a “buy” recommendation on the stock.

Disclosure: None