SNC-LAVALIN GROUP INC. $33 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 151.0 million; Market cap: $5.0 billion; SI Rating: Average) is a leading engineering and construction company. North America supplies 60% of its revenue.
SNC’s stock hit a new peak of $62 in June, 2008. That was partly due to its strong second-quarter earnings. In the three months ended June 30, 2008, SNC’s earnings jumped 83.3%, to $75.4 million from $41.1 million a year earlier. Earnings per share rose 81.5%, to $0.49 from $0.27. However, the big increase was mainly due to the costly bankruptcy of a key supplier to its power plant operations in the year-earlier quarter. Revenue crept up to $1.70 billion from $1.69 billion.
The company’s expertise is helping it win new contracts, particularly in overseas markets. For example, SNC has agreed to build a new airport in Libya’s second-largest city for $500 million. It’s also expanding its overseas operations through acquisitions of small engineering firms. SNC recently paid an undisclosed sum for two Romanian engineering companies that specialize in industrial and public infrastructure projects.
Despite these positive developments, SNC’s stock has moved down sharply in the past few weeks. That’s because the problems in the financial markets could make it difficult for companies to finance big new engineering projects. Engineering and construction projects are also cyclical, and it looks like we’re approaching the end of the current economic cycle.
The stock now trades at 16.9 times its likely 2008 earnings of $1.95 a share. However, the stock will make little progress until the credit crisis subsides. Falling prices for metals and other resources will also slow construction of new mines. The $0.48 dividend yields 1.5%.
SNC-Lavalin is a hold.
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