CB&I: Less Iron, More Energy

Don't let the name fool you -- Chicago Bridge & Iron (NYSE: CBI  ) doesn't build many bridges anymore, and I highly doubt they use much wrought iron. But what's in a name, anyway? This company is positing quite a bit of growth from the current international expansion in energy infrastructure.

CB&I has taken its lumps fairly recently, including an accounting mess and turnover in upper management, but second-quarter results will certainly help redeem that. Revenue jumped 36% this time out, and margins improved down the line, leading to a 73% improvement in operating income and more than twice the year-ago net profits. What's more, new awards won in the quarter rose 16% year over year.

Some recent announcements provide a flavor for what CB&I builds. The company got a $65 million deal from Suncor (NYSE: SU  ) to build some coke drums and a fractionator column for an oil-sands facility in Canada. A recent deal for an LNG terminal in Texas with 15.6 million ton capacity is also worth roughly $1 billion.

There are certainly risks to the CB&I approach. For starters, the company has historically fulfilled many of its deals under lump-sum turnkey terms -- meaning that it accepts a fixed price that exposes the company to execution risk, forcing it to eat any cost overruns. That's not bad when you can produce better margins on a given piece of business than rival bidders, but you don't have to look far -- try Acergy (Nasdaq: ACGY  ) or McDermott (NYSE: MDR  ) -- to find recent examples of similar contract philosophies that fared poorly.

Much like its deals, CB&I's target market offers good news and bad news. CB&I has worked for companies like Valero (NYSE: VLO  ) , ConocoPhillips (NYSE: COP  ) , Chevron (NYSE: CVX  ) , and ExxonMobil (NYSE: XOM  ) in the past, but those firms' investments in new facilities are inextricably linked to near-term energy price expectations. I believe that there will be ongoing demand for storage and energy conversion facilities, but price declines in the energy space (however unlikely) could be a threat.

If you're not afraid of the margin and market risk, consider CB&I. The shares may not look like a tremendous value today, but there's more there than meets the eye in terms of cash flow leverage.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

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