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Chicago Bridge & Iron Downgraded By Citi Following Disappointing Westinghouse Deal

Chicago Bridge & Iron Downgraded By Citi Following Disappointing Westinghouse Deal - Chicago Bridge & Iron Company N.V. NYSE:CBI

Citi’s Andrew Kaplowitz expressed disappointment regarding the contract signed between Chicago Bridge & Iron Company N.V. CBI 0.17% and Westinghouse.

Kaplowitz downgraded the rating on Chicago Bridge & Iron from Buy to Neutral, while lowering the price target from $48 to $38.

A Disappointing Deal

The analyst had expected “strong and potentially better-than-expected cash generation post the signed nuclear deal with Westinghouse would drive CBI’s valuation higher over time, even with expectedly weak bookings.”

However, Kaplowitz pointed out that contrary to expectations, the deal does not allow for 100 percent indemnification of the company, associated with any future earnings or cash impact from “troublesome” new nuclear construction projects.

“With a hearing on CBI’s filed complaint not expected for at least a couple of months, and despite our view that CBI likely has good ground to stand on that it shouldn’t owe WEC anything, we move to the sidelines for now,” the analyst stated.

Overhang On The Stock

The analyst believes there is a very low possibility, although not zero, of a potentially over $2 billion payout to Westinghouse from Chicago Bridge & Iron as part of the deal for working capital “true up,” which could lead to an overhang on the latter’s stock.

“We do believe CBI wrote a strong contract with WEC and in fact, CBI preemptively filed a claim saying that WEC was abusing the post-closing accounting true-up mechanism,” Kaplowitz said.

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DateFirmActionFromTo
Jul 2016CitigroupDowngradesBuyNeutral
Jul 2016BairdDowngradesBuyNeutral
May 2016Johnson RiceUpgradesAccumulateBuy

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