Stocks rallied during Janet Yellen’s testimony on February 24. Yet two of the three major indices gave up some of their gains the next day.
Chicago Bridge & Iron (CBI) kept on trucking, though. The stock jumped 14.2% after it beat analysts’ estimates for Q4 earnings.
Wednesday’s move helped push the stock into positive territory year to date after hitting its 52-week low in January.
If you’re worried you missed out, don’t be. As you’ll see, the optimism is totally misplaced.
Let’s take a look at what investors perceive, versus the real hindrances that CBI faces…
Examining Q4 and FY 2014 Results
Investors see the surface numbers of Q4 2014, along with the full-year 2014 results, and they’re hoping the stock goes higher.
For the three months ended December 31, 2014, the company reported a total revenue of $3.37 billion – a 12.3% increase over the same quarter in 2013.
However, the higher revenue didn’t trickle down to the bottom line. CBI reported an adjusted net income of $161.3 million, a 22.8% decline against in Q4 2013 results.
And while the company’s earnings per share (EPS) of $1.47 beat analysts’ expectations of $1.43, the company still saw an EPS decline of 23% against the same quarter a year ago (due primarily to falling oil prices).
Looking to the company’s full-year results…
Chicago Bridge & Iron reported a 16.9% increase in total revenue to $12.9 billion.
Adjusted net income for 2014 was $568.6 million, or $5.21 per diluted share. That represents a 7.8% increase over the previous year’s total of $527.4 million, or $4.91 per diluted share.
This may sound like music to shareholders’ ears, but here’s something to think about… CBI shares have woefully underperformed the broader market indices, declining more than 42.3% in the past year. (This includes Wednesday’s price spike.)
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If you’re still on the fence, consider these two roadblocks that are keeping CBI behind the curve, proving why I’m so bearish on the stock.
Challenge No. 1: Troubled Nuclear Power Plant. CBI faces serious headwinds caused by continued construction delays on a troubled nuclear power plant for Southern Company (SO) near Waynesboro, Georgia.
You see, the Plant Vogtle reactor sites 3 and 4 were originally expected to begin commercial operations in 2016 and 2017, respectively.
But pending lawsuits over delays, as well as cost increases between the principals, could delay commercial operations to Q2 2020.
Adding more pressure, it could take another 18 months to resolve the dispute between both parties. And with each month, CBI is shelling out another $40 million.
Challenge No. 2: Declining U.S. Oil Rig Count. A more pressing concern for CBI is the declining U.S. oil rig count, which fell by another 37 units last week. This marks the lowest number of rigs in production since July 2011.
With capex budgets being slashed almost to the bone with no end in sight, CBI will experience a serious decline in its cash flow.
And with an anemic quick ratio of 0.43, the company demonstrates weak liquidity to meet short-term needs.
For now, CBI shares are a bridge too far, and investors should stay clear.