Chicago Bridge and Iron (NYSE:CBI) used a recent analyst meeting to make the case than an investment in the company's stock will pay off over the next few years. This thesis is based, in part, on the growth expected due to the company's positioning along the oil and gas infrastructure complex.
IN PICTURES: 7 Forehead-Slapping Stock Blunders

Chicago Bridge and Iron's Steel Plate Structures division is still the company's largest business segment, with operating income of $96.5 million during the first nine months of 2010. This was 44% of the company's total operating income during the quarter. This division makes conventional storage tanks used for water and other materials, as well as specialty storage tanks used at Liquefied Natural Gas (LNG) and other energy-related projects. The company also makes containment vessels for use at nuclear facilities. In September, 2009, this business received a contract from Chevron (NYSE:CVX) for $550 million to build LNG and condensate storage tanks at the Gorgon project in Australia.

Lummus Technology reported operating income of $56.7 million in the first nine months of 2010, about 26% of the company's total. This business segment licenses proprietary technology and provides other services to companies in the refining, natural gas processing and chemical industries. Chicago Bridge and Iron holds more than 1,500 patents and earns a stream of revenue off of this base.

Due to the nature of business in Lummus Technology, operating margins are much higher here than in the companies other two segments. In the third quarter of 2010, this segment had an operating margin of 29.6%.

Recent Completion
In April 2010, Chicago Bridge and Iron reported the completion of a chemical plant built for Royal Dutch Shell (NYSE:RDS). The company provided engineering, procurement and construction service at the plant, which makes ethylene and propylene.

Shale Plays
The company is also leveraged to the growth in development of unconventional resource basins in North America. In May, 2010, Chicago Bridge and Iron was awarded a $280 million contract by Occidental Petroleum (NYSE:OXY) to provide engineering, procurement and construction services for a natural gas processing plant in California. The plant will strip natural gas liquids out of the natural gas stream and process them for sale. Occidental Petroleum is also licensing the technology from Lummus Technology to perform these functions.

Chicago Bridge and Iron also has a solid balance sheet with a debt to equity ratio just above 10%. The company also reported cash and cash equivalents of $361 million, and total debt of $120 million as of September 30, 2010. (Learn more about analyzing and calculating debt ratios in our Debt Ratios Tutorial.)

The Bottom Line
Chicago Bridge and Iron raised guidance on earnings per share for 2010 to a range of $1.90-2.05 per share, compared to the previous range of $1.75-1.90 per share. The company also established guidance for 2011, and expects earnings per share to range between $2.15-2.40 per share, and revenues to fall between $4.3 billion and $4.7 billion. This guidance is based on new business awards of $4.5 billion to $5.0 billion during the year.

Chicago Bridge and Iron is poised to benefit from the increased development of energy resources globally over the next decade.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    Asset Manager Ethics: Acting With Competence and Diligence

    Managers must make investment decisions based on their personal investment process, which in turn should be based on solid research and due diligence.
  2. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  3. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  4. Economics

    Why It Is Important to Follow Crude Oil Inventories

    Discover what oil inventories are, how they are communicated and what important insights they provide into the state of the oil market.
  5. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  6. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  7. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  8. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  9. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  10. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  4. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  5. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  6. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>

You May Also Like

Trading Center