Don't Sour on Shaw Group

Were it not for one pesky coal plant project, Shaw Group (NYSE: SGR  ) would have had a very fine quarter.

For the engineering and construction company's fiscal second quarter, which ended in February, revenue was roughly flat versus last year. Largely on account of expected cost overruns at the aforementioned coal plant -- a combination of quality issues, late delivery from vendors, and a force majeure event -- margins and net income came in considerably lower. Without the $45 million after-tax hit from this problem project, management suggested that this would have been a record quarter for earnings.

A record was indeed notched in terms of order bookings and backlog, however. That goes a long way toward reassuring me that my thesis on Shaw Group remains intact. As mentioned last quarter, Progress Energy's (NYSE: PGN  ) $4 billion nuclear order has officially hit the backlog. Now that Southern (NYSE: SO  ) has issued a full notice to proceed on its own pair of shiny new reactors in Georgia, that contract will enter backlog next quarter. These huge projects are rocket fuel for future revenue.

While Shaw Group lost Entergy's (NYSE: ETR  ) Little Gypsy petroleum coke project to a multi-year delay at best, and a cancellation at worst, the same utility just reupped a nuclear maintenance agreement with Shaw that spans 11 of its units. Once again, nuclear comes to the rescue.

Nuclear services, such as those offered by URS (NYSE: URS  ) and EnergySolutions (NYSE: ES  ) , are a separate avenue for Shaw to profit from the proliferation of new plants. Proliferation is probably a poor word choice on my part. But think about it. Who better to maintain and service reactors than the folks who build them?