In early 2008, after considering URS' (NYSE: URS ) ursine outlook, I urged Fools to be cautious when it came to the engineering, procurement, and construction (EPC) contractors. Sure enough, firms like Chicago Bridge & Iron (NYSE: CBI ) got absolutely crushed, but so did Shaw Group (NYSE: SGR ) . That surprised me.
I've been enthusiastic about this company for a while now, primarily on account of the firm's fabulous foothold in the nuclear reactor business. Importantly, this story isn't just about some future day when the orders start pouring in. Business is booming right now.
Shaw just reported record revenue and EBITDA for its fiscal first quarter, which ended in November. Results were strong across the board. The fossil and nuclear business continues to pick up valuable coal scrubbing contracts (management sees in excess of $1 billion more up for grabs in 2009), and will also be building a new gas-fired power plant in Nevada. After quarter's end, the segment also won the largest order in its history, a two-reactor EPC contract from Progress Energy (NYSE: PGN ) in Florida. This bumps up the backlog by $4 billion.
I won't step through every segment, but I will point out that the only previous laggard, the environmental and infrastructure segment, has turned around and started performing well again. This is also the segment that would most directly benefit from a federal stimulus plan.
Speaking of the Federal government, that customer accounts for one third of Shaw Group's backlog. Add in regulated utilities and national/international oil companies like Petrobras (NYSE: PBR ) and ExxonMobil (NYSE: XOM ) , and you get to 82%. That is a significant cushion against third-party financing woes, in my view.
Of course, even folks like Dow Chemical (NYSE: DOW ) are seeing projects sour these days, so no backlog item is set in stone. Compared to EPCs that are more heavily reliant on spending by strapped states, however, Shaw looks to be in a good spot. The closing of this most recent nuclear pact further reinforces my faith.
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