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Goldman Highlights 3 Implications Of Chicago Bridge & Iron’s Q2 Results

Courtesy of Benzinga.

Goldman Highlights 3 Implications Of Chicago Bridge & Iron's Q2 Results

Goldman Sachs remains Neutral on Chicago Bridge & Iron Company N.V. (NYSE: CBI) shares and cut the estimates and price target following the company’s lower-than-expected earnings for the second quarter.

The Hague, Netherlands-based company posted EPS of $1.17, which came in below Street view of $1.20. Quarterly revenue of $2.7 billion also fell short of Wall Street expectations of $2.82 billion.

The company cut its 2016 EPS outlook to $4.70–$5.00 and revenue forecast to $10.6 billion–$11 billion. The Street currently expects EPS of $4.82 on revenue of $10.99 billion.

“The quarter revealed weaker demand for Steel Plate Structures (partly driven by LNG) and slower revenue burn in Technology – the key drivers of the guidance cut for this year,” analyst Jerry Revich wrote in a note.

Related Link: Magnitude Of Chicago Bridge & Iron’s Guidance Cut Caught Citi By Surprise

3 Takeaways

Following are the three implications of Goldman on the company’s results:

    1. Margin Pressure On Cost Plus Projects: “Management noted 2Q E&C segment margins were impacted by cost overruns on several projects as well as margin pressure on cost-plus work due to increased customer focus on cost reductions.”
    2. Visibility On A Return To Backlog Growth Appears Limited: “We await an offtake agreement for Cameron train 4 before modeling in a final investment decision for the project. While we are positive on the cost structure of the Mozambique LNG project, timing of a final investment decision is unclear. US power, however, remains a bright spot.”
    3. Capital Services Margins Improved To 2.9% In 2Q From 2.0% In 1Q: “Management remains optimistic on a continued recovery toward 3–6 percent target margins in coming quarters despite the completion of three nuclear projects that were taken out of backlog ($400 million).”

    The analyst cut his 2016 EPS/revenue estimate to $4.73/$10.096 billion from prior estimate of $4.95/$10.908 billion.

    Revich also trimmed his 12-month price target by $5 to $35 based on 5.9x 2017E EV/EBITDA.

    “We maintain our Neutral rating on CBI, as our positive view of CBI’s strong win rate is balanced by challenging prospects to maintain the current backlog, in our view,” Revich added.

    At time of writing, Chicago Bridge & Iron had fallen 1.71 percent on the day to $33.82.

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    Latest Ratings for CBI

    Date Firm Action From To
    Jul 2016 MKM Partners Maintains Buy
    Jul 2016 Citigroup Downgrades Buy Neutral
    Jul 2016 Baird Downgrades Buy Neutral

    View More Analyst Ratings for CBI


    View the Latest Analyst Ratings

    Posted-In: Goldman SachsAnalyst Color Earnings News Guidance Price Target Reiteration Analyst Ratings Best of Benzinga

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