Why Chicago Bridge & Iron Company Stock Dropped 11% on Wednesday

Markets Motley Fool

What happened

Continue Reading Below

Shares of Chicago Bridge & Iron Company (NYSE: CBI) closed down 10.9% on Wednesday after the engineering company saw its stock cut to "hold" by analysts at Jefferies.

So what

A one-notch downgrade from buy to hold doesn't sound so bad, but here's the thing: Back when Jefferies was still recommending that investors buy Chicago Bridge stock (i.e., yesterday), the analyst was predicting CB&I shares would more than triple to $35 a share. That pie-in-the-sky possibility is now off the table.

Instead, according to Jefferies, Chicago Bridge stock is probably worth $12 at best. Granted, that's still 20% more than what the stock costs today. But for any investors who had been hoping to see CB&I turn into a three-bagger, news of this price target cut had to come as the biggest disappointment.

Now what

Continue Reading Below

And even $12 could be a stretch in a worst-case scenario. Among other risks, Jefferies highlights the risk that cost overruns at Chicago Bridge's two liquefied natural gas projects could ding earnings this year, next year, and even the year after that.

Given that Chicago Bridge is already losing money and selling for a negative P/E ratio, that it's issued guidance essentially guaranteeing that it will lose money this year, and that it just suspended its dividend to boot, that seems to be a risk that investors are unwilling to take.

10 stocks we like better than Chicago Bridge & Iron
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Chicago Bridge & Iron wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 1, 2017

Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.