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Actionable news in PWR: QUANTA SERVICES Inc,

Chicago Bridge & Iron: Negative Working Capital And Awful Valuation

Summary

Robert W. Baird cut their outlook on CBI due to litigation and industry headwinds.

David Einhorn, a commonly known accounting guru, sold out of his entire position in Q1.

Q2 results must deliver on cash flow conversion otherwise underlying risk is substantial.

Current valuation range is fair or could be a little high.

Technical chart oddly remains weak for a business expected to post strong results this year.

Robert W. Baird cut their outlook to neutral on Chicago Bridge & Iron Company (NYSE:CBI) due to concerns related to a newly filed lawsuit from Westington and headwinds that remain throughout the oil & gas subsector. We find this action to be appropriate given that cash flow uncertainty stands at a new high. One thing that investors need to recognize is that regardless if this company can build itself a solid back-log portfolio, it doesn't mean that it will automatically return value to shareholders. While we are not a better predictor of financial results than management or Wall Street analysts, it's apparent that even after nearly three years, contract issues are still a challenge for this company.

Analyst Downgrade

We saw a mixed bag of ratings action on Friday and some consensus was that this litigation may not materialize in the courtroom. However for us, it comes as no surprise that more issues are following the disposal of the nuclear division. The reason is that CBI management appeared to dispose of considerably weak assets (i.e. bad projects) fairly easily, and even for a pretty penny (disregarding the attached non-cash impairment charge). We have no legal experience but thinking intuitively here, it's hard to see a lawsuit involving a potential claim of 2 billion dollars as...


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