Profiting from the Global Energy Boom

03/03/2014 11:00 am EST


Jim Jubak

Founder and Editor,

This company's recent acquisitions, rising backlogs, soaring orders, and organic growth, bolstered by the global energy boom, has made MoneyShow's Jim Jubak raise his target price.

On February 25, Chicago Bridge & Iron (CBI) reported earnings of $1.91 a share. Excluding a big tax benefit (72 cents) and acquisition costs (11 cents), adjusted earnings came to $1.19 a share. That was 3 cents a share above Wall Street projections.

The company also confirmed its guidance for 2014 of $4.80 to $5.65 a share (versus the Wall Street consensus of $5.19.) Backlog grew 14% from the third quarter to $27.8 billion and total orders climbed 86% year over year. Margins for the company's core engineering, construction, and maintenance unit climbed to 5.8% in the quarter from 4.3% in the third quarter. For 2014, the company said it expects margins in the upper part of the historical 4% to 7% range.

On the fourth quarter results and, more importantly, on the 2014 guidance, I'm raising my target price on Chicago Bridge & Iron to $90 a share by August 2014, from the prior target price of $76. Chicago Bridge & Iron is a member of my Jubak's Picks portfolio.

I added Chicago Bridge & Iron to my Jubak's Picks portfolio on May 20, 2013 at $63.41 as a way to profit from the global boom in liquefied natural gas and chemical plant construction. In the fourth quarter, a few projects did get pushed out, but as rising backlogs and soaring orders in the quarter testify, my thesis remains intact. The added business from the company's acquisition of the Shaw Group aside, organic revenue growth in the engineering, construction, and maintenance business climbed 26% year over year in the fourth quarter, and that increase, the company noted, was driven by projects in liquefied natural gas and natural gas processing work in Asia and the Pacific. Orders for this part of the company's business climbed 195% from the third quarter. The book to bill ratio, a ratio that compares new orders (book) to work completed (and billed) was a very satisfactory 2.1 in the quarter. The US energy boom was a big driver for the company's fabrication services unit. For example, Chicago Bridge & Iron signed a long-term deal with Dow Chemical (DOW) for projects on the Gulf Coast.

On February 20, the company's board of directors voted to increase the quarterly dividend to 7 cents a share from 5 cents. (Bringing the current yield to a still microscopic 0.33%.) The record date for the next quarterly dividend is March 20.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Chicago Bridge & Iron as of the end of December. For a full list of the stocks in the fund see the fund's portfolio here.

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