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.
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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%.
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.
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.
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