Prescience Point Research Group is pleased to release its latest report on Chicago Bridge & Iron Company N.V. (NYSE:CBI). The complete 40 page report can be downloaded at our website HERE.
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Prescience Point believes Chicago Bridge & Iron is grossly overvalued
Shares of Chicago Bridge & Iron Company N.V. (NYSE:CBI) (“CBI”, or “the company”) are grossly overvalued. CBI has used creative acquisition accounting to conceal losses, resulting in GAAP financial statements divorced from its economic realities. After acquiring Shaw Group in 2013, CBI made unusual and repeated retroactive adjustments to its purchase price allocation. Doing so enabled it to amass a ~$1.56B reserve that can be converted directly into gross profit to offset future costs, thereby inflating profitability. For example, we estimate that CBI’s 2013 reported Gross Margin was inflated by 27%, and EBITDA and reported Adj EPS were overstated by 36%, and 52%, respectively; absent the non-cash benefit from this reserve, CBI would have reported a -10% contraction in pro-forma EPS, not +47.4% growth, as it did. CBI is struggling with certain Shaw contracts that may prove to be severely loss making, and the reserve is being used to mask their impacts and CBI’s increasingly fragile financial condition. Q1’2014 results confirm our expectations that Chicago Bridge & Iron Company N.V. (NYSE:CBI) continues to face headwinds, including continued losses, divergence of earnings and cash flow, and a rising dependency on debt. CBI likely has no excess cash, and is already overleveraged. While CBI has $1.35B of revolver availability, this may prove temporary: We believe CBI will be forced into a goodwill write-down or financials restatement, either of which would trigger debt default, heightening the risk of a liquidity crisis or dilutive equity raise.
Meanwhile, Wall Street analysts are missing the forest for the trees, anchoring their projections to Chicago Bridge & Iron guidance without knowledge that CBI is using cookie jar accounting to ‘close the gap’ on achieving it. We believe Chicago Bridge & Iron Company N.V. (NYSE:CBI) has presented itself to the investing public in a highly questionable manner and that, as a result, it has been successful in its efforts to inflate its stock price beyond reasonable measure. Based on our analysis, CBI stock is worth ~$37 per share, ~49% below current trading levels.