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Chicago Bridge & Iron Wins $460M Contract to Expand Refinery

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Chicago Bridge & Iron Company N.V. recently announced that it has secured a contract worth $460 million from NefteGazIndustriya, LLC, through project developer China National Chemical Engineering Co. The project, which was initially booked in the company’s third-quarter 2016 backlog, allows Chicago Bridge & Iron to provide services to the Afipsky Oil Refinery expansion project in Krasnodar, Russia.

Chicago Bridge & Iron is aiding NefteGazIndustriya in the modernization of its Afipsky refinery to help set it apart from peers. Per the contract, the company will offer engineering, procurement, construction management and commissioning services on multiple process units. It will also offer services to a Chevron Lummus Global licensed 2.5 million ton per annum hydrocracker unit, a joint venture between the company and Chevron.

Chicago Bridge & Iron had previously won awards for technology license and FEED contract for multiple process units. It is also set to perform engineering, procurement, fabrication services and supply ‘a steam methane reformer’ to a hydrogen plant, hydrocracking heaters and Breech-Lock exchangers.

Macro Woes Rife

The company has slumped hard over the past one year, having plunged 18.6% in stark contrast to the Zacks Categorized Building-Heavy Construction industry’s average return of 24.9%. Lingering weakness in the energy sector had played a significant role here, thwarting growth. Decline in capital investments and cyclical trends of hydrocarbon refining, petrochemical and natural gas industries were major headwinds.

Things had begun to turn around post the U.S. presidential elections, as Chicago Bridge & Iron was arguably counted among the leading beneficiaries of president Trump’s “Rebuilding America” program. But it appears that the optimism was short-lived. The company shares have lost 6.6% so far in 2017, far wider than the industry’s average negative return of 1.2%. The colossal miss in the recently reported fourth-quarter results proved to be a huge dampener.

Going forward, we believe that the Zacks Rank #5 (Sell) company is unlikely to witness any notable recovery in its end markets in the foreseeable future. Also, major divestures and restructuring are putting pressure on the balance sheet, adding to short-term woes. The escalating legal tension related to the sale of nuclear construction business to Westinghouse Electric might add to the company's burdens.

Further, the company’s earnings estimates also moved south over the past couple of months. Chicago Bridge & Iron has seen six downward estimate revisions compared to none upward, over the past 30 days. This has led the Zacks Consensus Estimate for 2017 earnings to go from $4.55 to $4.15 per share, which indicates bearish analyst sentiment for the stock.

Stocks to Consider

Better stocks worth considering in the broader sector include II-VI Incorporated , Dycom Industries, Inc (DY - Free Report) and DR Horton Inc. (DHI - Free Report) . While II-VI Incorporated and Dycom Industries sport a Zacks Rank #1 (Strong Buy), DR Horton Inc. carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

II-VI Incorporated has registered a remarkable positive average surprise of over 59.2% for the last four quarters, driven by four remarkable consecutive beats.

Dycom has a positive average earnings surprise of 17.30% for the last four quarters, having beaten estimates all through.

DR Horton has a decent earnings beat history, having surpassed estimates twice over the trailing four quarters for an average beat of 6.3%.

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