In the last thirty days, six analysts have increased their earnings forecasts for this industrial company’s next quarter.
Chicago Bridge & Iron (CBI)
From Sound Advice
The recent slide in Chicago Bridge & Iron (CBI) is not supported by any news or change in the fundamentals of the company.
The only significant news was reported yesterday with the announcement of the retirement of the current President and Chief Executive Officer, Philip Asherman. He is being replaced by the company’s Chief Operating Officer, Patrick Mullen, who has been with the company since 2007, and been in charge of all engineering and construction operations. Based on Mr. Mullen’s history and experience with the company, there is no reason to expect anything but a smooth transition.
This news is not necessarily negative, and certainly would not explain the slide in the stock price. Of course, we have been digging for news or other events that could support the decline, but have found nothing. Absent any other substantial developments, the only explanation is a stock market over-reaction to the previously reported disappointing first quarter earnings report, which is old news.
The company has not changed its earnings guidance for 2017 to range from $3.50 to $4.00 per share. At $21 per share, CBI is selling at an astonishing low price/earnings (P/E) ratio of 6, based on the low end of the earnings expectation of $3.50. This compares to the P/E of the overall market of approximately 19, as measured by the S&P 500.
At the current price, CBI presents tremendous upside potential. Even if the company lowers its earnings guidance for some reason, the stock is still dirt cheap. The fundamentals of the company have not changed. It remains an infrastructure play. As we mentioned a few days ago when the market plunged; despite the recent political drama, the Trump Administration’s US infrastructure program is still in the works. Any new infrastructure spending will be an enormous benefit to CBI.
Accordingly, the recent decline is bound to prove to be a buying opportunity.
Gray Cardiff, Sound Advice, www.soundadvice-newsletter.com, 800-825-7007, May 19, 2017