SHAWCOR LTD. $17 (Toronto symbol SCL.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 71.0 million; Market cap: $1.2 billion; SI Rating: Average) makes sealants and coatings that protect onshore and offshore oil and natural gas pipelines from corrosion.
Thanks to high oil prices and a surge in new pipeline construction, ShawCor’s stock jumped to $40 in October, 2007. However, the stock has moved down since then, partly due to the rise in the Canadian dollar. Overseas markets account for about 75% of ShawCor’s revenue, and a strong dollar hurts the contribution of these foreign operations to the company’s overall earnings. As well, rising raw material and labour costs have also weighed on its profit growth.
In the second quarter of 2008, earnings fell 24.4%, to $0.31 a share (total $22.2 million) from $0.41 a share ($30.3 million) a year earlier. Revenue rose 6.8%, to $295.1 million from $276.4 million. The higher Canadian dollar cut revenue in the latest quarter by $12.9 million.
ShawCor is now expanding its capacity to take advantage of several promising opportunities, including the development of Canada’s oil sands and new offshore oil discoveries near Brazil. The costs of this expansion have hurt ShawCor’s recent earnings, but should pay off in the next few years.
The company should earn $1.63 a share in 2008, and stock trades at 10.4 times that figure. The $0.26 dividend yields 1.5%.
ShawCor is a buy.
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