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Chicago Bridge & Iron, Cameron LNG Sign Settlement Agreement

Zacks Equity Research
Updated

Chicago Bridge & Iron Company CBI recently reached a settlement agreement with Cameron LNG concerning the three-train LNG liquefaction project in Hackberry, LA. Chicago Bridge & Iron is constructing the project through CCJV (a joint venture with Chiyoda International Corporation).

The settlement resolves all past commercial issues, and will contribute to the successful on-time completion of the energy infrastructure project, which has all three liquefaction trains producing LNG in 2019.

The issues include all known and unknown claims to date (including impacts from Hurricane Harvey) and the relinquishment of any schedule-related liquidated damages related to the original contract. The contract also reestablishes liquidated damage start dates and provides incentive bonus payments related to expedited project completion.

Earlier this week, Chicago Bridge & Iron and McDermott MDR agreed to merge in an all-stock deal worth about $6 billion, creating an extensive engineering, procurement, construction and installation company amid a stabilizing global oil market, with $10 billion in combined revenues and an impressive backlog of $14.5 billion.

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The deal is expected to be cash-accretive (excluding one-time costs) within the first year of its conclusion. Both companies project to generate annualized cost synergies of $250 million in 2019 and sizeable revenue synergies. This is in addition to Chicago Bridge & Iron’s $100-million cost-reduction program.

This Zacks Rank #3 (Hold) company’s shares have lost 54.8% of value in the past year, in stark contrast to the industry’s gain of 2.5%. The company has missed the Zacks Consensus Estimate for earnings by an average of 149.7% over the trailing four quarters, and also lagged revenue estimates during the same time frame.

The company has been plagued by formidable headwinds since the crash in oil prices and has taken aggressive measures to shore up its finances. With slumping revenues, bleak guidance, distress sale of a key operating unit and the need for extreme strategic action, the future looked exceedingly uncertain for Chicago Bridge & Iron.

The opportunity to merge with McDermott came when Chicago Bridge & Iron pursued the sale of its Technology and former Engineered Products businesses. The combined company will be completely vertically integrated, and offer end-to-end engineering, procurement, construction and installation (EPCI) services to the onshore and offshore energy sectors.

The deal will, thus, integrate two highly complementary businesses and create a leading onshore-offshore EPCI company, with immense scale and diversification to capitalize on global growth opportunities. Whether the combined entity manages to grow in this challenging energy infrastructure market remains to be seen.

Stocks to Consider

Some better-ranked companies working in the same space as Chicago Bridge & Iron are EMCOR Group, Inc. EME, sporting a Zacks Rank #1 (Strong Buy), and MasTec, Inc. MTZ, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

EMCOR Group has a strong earnings beat history, having surpassed estimates thrice over the trailing four quarters. It has a positive average surprise of 17%.

With four back-to-back, robust earnings beats, MasTec has a striking average positive surprise of 28.1%.

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Chicago Bridge & Iron Company N.V. (CBI) : Free Stock Analysis Report
 
EMCOR Group, Inc. (EME) : Free Stock Analysis Report
 
MasTec, Inc. (MTZ) : Free Stock Analysis Report
 
McDermott International, Inc. (MDR) : Free Stock Analysis Report
 
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Zacks Investment Research