"That which we call a rose by any other name would smell as sweet."
-- William Shakespeare, from Romeo and Juliet (Act II, Scene 2)
Chicago Bridge & Iron (NYSE:CBI) doesn't really build bridges, nor does it really do much ironworking. But what's in a name? What does it matter so long as this construction and engineering firm continues to benefit from a robust market for energy infrastructure projects?
Befitting the lumpy nature of the beast, revenue was up 32% from last year and 15% from the prior quarter. Revenue growth was very strong in North America (up 47%) and Asia (up 20%), although more modest but still positive in Latin America, Europe, Africa, and the Middle East (all also up 8%).
With higher revenue, the company also saw considerable leverage in terms of operating efficiency. Operating margin climbed by nearly 5 percentage points, and operating income was more than 500% higher for this quarter.
Looking at future business trends, the company booked 38% more new business in this quarter (to $550 million) than in the year-ago period. Deals included storage facilities in the Middle East, sulfur-processing projects in the U.S., and an LNG import terminal in China for CNOOC (NYSE:CEO). With these new orders, the company's backlog now stands at more than $3 billion, which is double the year-ago level.
If any Fools out there are worried about the sharp drop in new business this quarter, they needn't be. Not only was the prior quarter quite large ($1.4 billion), but new business bookings are also a lumpy process. What's more important are these two basic facts: (1) High energy prices and growing energy demands have led to a very robust market for new facilities, and (2) business isn't likely to abate for a few more years.
Forward valuations on CB&I shares look expensive, but I think that analysts may be underestimating future earnings. As with what we've seen in energy, energy services, and coal, analysts might be a bit slow in catching up to the pace of new business, and future upward estimate revisions could be in the cards. That's neither a guarantee nor a prediction -- just a stating of possibility.
CB&I shares have already had a great run -- there's no doubt about that. What's more, demand for projects like LNG terminals should only increase with time. But the construction business is fickle, and an economic downturn could lead to project delays and cancellations. Investors buying these shares today need a firm conviction that building trends are apt to stay solid and that CB&I's valuation hasn't fully discounted that.
For more constructive opinion, click on this further Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
