SHAWCOR LTD. $39(Toronto symbol SCL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.5 million; Market cap: $2.5 billion; Price-to-sales ratio: 1.3; Dividend yield: 1.5%; TSINetwork Rating: Average; www.shawcor.com) makes sealants and coatings that keep oil and natural gas pipelines from rusting. This business supplies 90% of its revenue. The remaining 10% comes for making industrial products, like electrical wire and protective sheaths.
Last year, the company won contracts to coat underwater pipelines for the South Stream Pipeline project, which pumps natural gas from Russia under the Caspian Sea to Turkey. From there, other pipelines pump the gas to Italy and into Europe. The pipeline’s operators suspended construction in late 2014, but they have recently restarted the project. ShawCor now expects to complete these jobs in the second half of 2015. The company has resumed work on one contract worth $65 million. A second job, worth $60 million, is still suspended. Meanwhile, ShawCor’s revenue fell 1.5% in the three months ended March 31, 2015, to $471.9 million from $479.1 million a year earlier. That’s mainly because the company coated fewer pipelines. However, favourable exchange rates added $16.2 million to its revenue in the latest quarter.
Earnings fell 39.0%, to $37.8 million, or $0.58 a share, from $61.9 million, or $1.03. Aside from the lower revenue, ShawCor completed a highly profitable contract in the year-earlier quarter. These were the main reasons for the lower earnings.
As of March 31, 2015, ShawCor’s backlog was $703 million. Its strong reputation should keep helping it win contracts; it has submitted a total of $1 billion worth of bids on new jobs.
The company will likely earn $1.86 a share in 2015, down 40.8% from 2014. The stock trades at a still-reasonable 21.0 times that depressed earnings estimate. The $0.60 dividend yields 1.5%.
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