Why You Should (and Shouldn't) Buy Chicago Bridge & Iron Company N.V.

By Sean O'Reilly and Rich DupreyMarketsFool.com

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Chicago Bridge & Iron N.V. (NYSE: CBI) is one of the premiere engineering and construction companies in the world. Founded in 1889 in (unsurprisingly) Chicago as a structural engineering company, the business has since shifted its domicile to The Hague, Netherlands, and become a global juggernaut in its industry. However, more recently, troubles relating to asset sales and a less-than-ideal marketplace have taken their toll on the company's shares. There is likely value to be had in its stock, but this investment is not for the faint of heart.

So, without further ado, here are two Fools' views on Chicago Bridge & Iron, and why you should -- and shouldn't -- buy it.

Engineering a turnaround

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Rich Duprey: There's a good reason the engineering, procurement, and construction company has rallied smartly since September: The weakness in the energy industry has largely passed, and the future should be brighter from here on out.

From a business standpoint, Chicago Bridge & Iron peaked about two years ago when quarterly revenue hit $3.38 billion, though its stock price took a few more months to realize that was as good as it was going to get. After peaking at $58 a share, the EPC specialist's stock began a steady march lower, a slide that reached its nadir at $26 a share this past September. The collapse in energy prices and subsequent cuts in capital expenditures by the largest oil and gas producers also took its toll on CB&I's revenues, which bottomed out in the first quarter of this year at $2.67 billion.

CBI Revenue (Quarterly) data by YCharts.

Now, both its revenue and its stock price are marching higher once more. The company reported revenue of $2.87 billion last quarter, and President and CEO Philip Asherman was upbeat when he declared that despite industry headwinds, Chicago Bridge & Iron was seeing "new awards, revenues, operating income and margins, and earnings per share" all hitting high points for the year. He expected the momentum to continue into the fourth quarter as a modest recovery in the energy sector takes shape.

Indicative of the better prospects is the contract the company won just two weeks ago for the engineering, procurement, fabrication, and construction of a multipurpose liquefied natural gas storage and fueling terminal in Tacoma, Washington. A month before that, it announced a five-year contract renewal valued at approximately $350 million for maintenance, turnarounds, and capital construction for a major refinery in the Midwest. Those kinds of wins mean it won't have to rely upon its backlog of business, which totaled $19.8 billion at the end of the third quarter, to get through the slump. It is bringing in as much in new business now as it's recording in revenue, a healthy turnabout.

Chicago Bridge & Iron pays a modest dividend of $0.28 annually that currently yields 0.79%, meaning you're not going to get especially rich waiting for the EPC specialist to recover. However, with its still-depressed valuation, investors can get in on the stock while it's exceedingly cheap. Its enterprise value is less than 10 times its free cash flow, which it hasn't lost its ability to produce. A dividend, plus the prospect of further stock appreciation as business returns, is a powerful combination.

Patience required

Sean O'Reilly: You will find little argument from me regarding the dirt cheap valuation of Chicago Bridge & Iron stock. The facts are there in black and white. Earnings per share is expected to come in at $4.85 in fiscal 2016. The company also continues to throw off copious amounts of free cash flow -- approximately $550 million over the past 12 months, according to S&P Global Market Intelligence. This measure is important, given that the accounting conventions surrounding CB&I's business (which is extremely long-term oriented) require important revenue recognition estimates. With its shares at $35, yielding a market capitalization of just over $3.5 billion, any value investor can see that there's value to be had. Unfortunately, the price one pays for being a truly long-term investor is that one must be eternally patient -- and therein lies the rub.

All of those positives matter not to individual shareholders who suffer that most dangerous of mental states for investors: impatience. We are all told to think long term, and to buy and hold great businesses, but when the going gets tough, that's easier said than done. Chicago Bridge & Iron has more than a few obstacles to overcome in the years ahead before Wall Street's current fears about it are allayed.

First, there was the recent ruling against the company in its lawsuit against Westinghouse. Westinghouse had purchased CB&I's Stone & Webster nuclear power construction business in 2015 for $225 million. Since the sale, Chicago Bridge & Iron has been seeking a positive judgment regarding a dispute on current asset valuation that Westinghouse utilized in the purchase. Now that Chicago Bridge & Iron's lawsuit has been rejected, the two parties will head to an independent third-party auditor to hash out an agreement. Needless to say, the uncertainty has weighed on the stock and will continue to do so for the foreseeable future.

Then there is the ongoing downturn in the oil and gas sector. The company's "upstream" division counts on that sector for a large chunk of its business. It has since focused on the Gulf Coast as a source of revenue for its engineering and construction services, but onshore capital expenditure cuts have taken their toll. And while oil prices have been on the upswing lately, we can expect CB&I's customers in the energy space to continue to be conservative in spending.

Bottom line: Chicago Bridge & Iron appears to be a fantastic value stock that will likely reward current shareholders in the years ahead. Patience will be required, but good things come to those who wait.

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Rich Duprey has no position in any stocks mentioned. Sean O'Reilly has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.