Magnitude Of Chicago Bridge & Iron's Guidance Cut Caught Citi By Surprise

Although 2016 has been expected to be a tough year for late-cycle oil & gas exposed E&Cs, Citi’s Andrew Kaplowitz expressed surprise at the magnitude of the guidance cut by Chicago Bridge & Iron Company N.V. (NYSE: CBI) for 2Q.

Kaplowitz maintains a Neutral rating on the company, with a price target of $38.

A Cash Story

The analyst mentioned, however, that cash was a meaningful positive, despite the continued weakness in bookings.

“Bottom line is CBI remains a cash story – and the combination of low expectations and continued strong cash performance should support the stock at relatively inexpensive levels even though the re-emergence of nuclear overhang keeps us from being more positive,” Kaplowitz stated.

Related Link: Chicago Bridge & Iron Downgraded By Citi Following Disappointing Westinghouse Deal

Guidance Cut

Chicago Bridge & Iron has lowered its award guidance from $10–$12 billion to $8–$10 billion. Although this is more in line with the already low investor expectations, Kaplowitz believes it still was not overly conservative, implying a relatively material ramp in 2H.

Guidance Achievable

“The low end of the guidance is doable, but CBI probably needs one sizeable $1+ billion award to get there, in our view,” the analyst noted.

The EPS estimate for 2016 has been lowered to $4.85, to reflect that the shortfall in bookings could lead to revenue below the previous estimate.

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