Why I am Closing Chicago Bridge and Iron

I am closing out one of my infrastructure stocks; Chicago Bridge & Iron (CBI) after a less than stellar earnings report. There were 2 days in a row an infrastructure stock has missed; before it was McDermott [McDermott Issues Warning] but I've decided to hold the latter for now. Main difference is despite the name, Chicago Bridge & Iron is based in the Netherlands and thus does not have the tailwind of the US Peso at it's back. Further, the fall in McDermott (MDR) took the stock down to its 50 day moving average, but not below... nor below its 200 day moving average.... the fall in CBI has taken it down below both moving averages. So these 2 factors combined are why I am keeping one (for now) and letting the other one go.

I have a big stable of infrastructure names, so I still have a big basket of names... I will be curious if the others create the same excuses of "weather" (MDR excuse) or "commodity costs" (CBI). I did not see Jacobs Engineering (JEC) complain about either in its recent report.

Last, I have been adding a lot of positions of late and want to streamline the portfolio and try to keep the long positions at a certain ceiling... so I've been mulling what positions to cut over this past weekend - this was one of the candidates, and this earnings report confirmed. While I can hold this for a while and hope for a rebound to curtail my losses I just decided to cut bait and focus energy on other ideas.

I'm selling my 1.5% stake which I started on November 12, 2007 for a net loss of $6000, selling today in the $42s. Again, for some this is a buying opportunity as the stock has retreated but I just don't like the lack of execution; this is not a 2-3 cent miss but a miss by a mile - again lack of managing Wall Street is not what I like in my holdings. I still like this name for the long run based on what space it operates in.

• Chicago Bridge & Iron Co. said Wednesday its first-quarter profit rose 15 percent year-over-year but failed to meet Wall Street expectations, as escalating material and commodity costs offset revenue growth.
• The engineering and construction company said net income rose to $42.2 million, or 43 cents per share, from $36.6 million, or 38 cents per share, a year ago. Analysts surveyed by Thomson Financial had expected much higher profit of 54 cents per share.
• Revenue surged 68 percent to $1.4 billion from $857.3 million, in line with analysts' expectations. New awards for the quarter totaled $943 million, bringing CB&Is total backlog to $7.3 billion as of March 31.
• "We are confident in our full-year forecast and in the continuing level of capital expenditures in the global energy market although challenges on projects related to labor productivity and escalating material and commodity prices have impacted the quarters results," said Philip K. Asherman, President and CEO.

Disclosure: Long McDermott, Jacobs Engineering in fund; no personal positions

Comments

[User 186577]

CBI is a based legally in the Netherlands but is headquartered in Texas and conducts all its business in USD. So the "U.S. Peso" benefits them as much as any other U.S.-based EPC.

Do you actually do research on any of these companies?

[valueguy123]

This is the time to be buying CBI, not selling it. If you are going to own infrastructure names, your time horizon must be years not months.

[stiffarc]

Why should we believe Wall Street anlysts know more about a company's operation than the company leadership? Anlysts give only "opinions" about earnings since in reality they are ignorant of the day to day operations. Regardless of what the anlysts say, any company with a $7.3B backlog is in pretty good shape!

[fran]

your analysis vs your bio are a mismatch--at least on this one. have you reviewed the historical record, including the past five years? same for MDR? do you understand anything about this industry. where were you in years 2003 thru 2006 when the basis for this industry's growth was set? is it your common practice to throw out after one miss[and the street's quarterly SWAG as the basis]

should you have significant dependence for livelyhood on your analytic rcommendation, look out! your clients may adopt similar criterion/results. ONE STRIKE AND YOUR OUT.

[Gordie]

I took CBI's 1st qtr miss as an opportunity to ADD to my position. CBI is a BUY. I wouldn't classify FWLT as a sell just because they missed their last quarter. The dip in price of Foster Wheeler would also have been a great buying opportunity. Infrastructure isn't for day traders. CBI will be a great play for years...take your profits but be sure to buy on the dips!

[Gordie]

I took CBI's 1st quarter miss as an opportunity to ADD to my position. Foster Wheeler missed their last quarter and that also was a great opportunity to BUY. Infrastructure will be a good play for quite some time and isn't for day traders. Take your profits but buy on the dips!

[law&investing]

CBI is going to 55+; record backlog; management re-affirming; lehman re-iterated a buy w/ a 60 PT, 3+ dollars of cash on hand.

A 15-20 p/e is not unreasonable for a 20+ % grower. PEG of .73 is much cheaper than MDR FWLT FLR.

As far as a buy based on technicals I would be loading up here (37-39) w/ a stop at 35.00 or near the march low.

[xcbi]

CBI is doing exactly as I anticipated. They don't know how to run their business. Huge increase in revenues and much smaller profit margin due to inept management. Expect more of the the same. When the GPLNG numbers come out it will be a real eye opener.